Rising geopolitical risk pushed Brent well past $80 last week, but the brief price rally has been dampened by continued economic concerns and a strong supply situation.
Chart of the Week
- Saudi Arabia’s government ordered the state oil company Saudi Aramco (TADAWUL:2222) to halt its oil expansion plan and maintain a production capacity of 12 million b/d, almost 10% lower than the current target of 13 million b/d.
- The Saudi economy posted one of the steepest contractions in the 21st century, with its 2023 GDP falling by 1.1% year-on-year, and even though the IMF expects it to grow again in 2024-2025, Riyadh needs oil revenues in other segments of the economy, too.
- The oil sector still accounts for 40% of Saudi Arabia’s GDP, so the country’s voluntary production cuts in 2023 that lowered total crude production to 9 million b/d have reversed Riyadh’s fortunes after a stellar 2022 when the economy grew 9% and the budget ran a surplus for the first time in a decade.
- Endowed with the world’s largest spare capacity right now, some 3 million b/d, Saudi Aramco planned to expand its ambition by boosting output from the Marjan, Berri, and Zuluf fields, targeting 2026-2027 for completion.
- Brazil’s courts have ordered mining giants Vale (NYSE:VALE) and BHP (NYSE:BHP) to pay $9.7 billion in damage repairs over the 2015 Samarco Fundao dam burst in 2015, Brazil’s worst environmental disaster to date.
- Albemarle (NYSE:ALB), the world’s largest lithium producer, will cut 4% of its workforce as plunging lithium prices force the US firm to get leaner, as Li carbonate prices in China plunged to $1,900/mt.
- UK-based energy major Shell (LON:SHEL) plans to convert its 150,000 b/d capacity Wesseling refinery in Germany into a production unit for base oils, ending crude refining there by 2025.
Tuesday, January 30, 2024
The potential for a larger conflagration in the Middle East lifted Brent well above 80 per barrel earlier this week, but weak Chinese data poured some cold water on that bullish sentiment, with domestic consumption coming in below expectations and the property market remaining on tenterhooks as Evergrande is finally mandated to liquidate. Potentially offsetting the Chinese malaise, the Federal Reserve meeting and US inventories will be the leading pricing signals this week.
White House Revisits Venezuela Sanctions. Following Venezuela’s Supreme Tribunal banning Maria Corina Machado from registering her candidacy for the 2024 presidential elections, the US State Department stated that it is reviewing its sanctions policy, 3 months after lifting the ban on crude.
Indian Diesel Flows to Europe Dry Up. India has become one of the key suppliers of diesel to the European market after Russian volumes pivoted away to Asia, but the Red Sea disruptions and high freight led to India’s exports slumping by a hefty 80% month-on-month, a mere 50,000 b/d.
Trafigura Reports Tanker Hit and Fire. A Trafigura-controlled tanker carrying naphtha was struck by Houthi missiles Friday late evening, en route to Southeast Asia after several ship-to-ship transfers in Greece’s Kalamata, and it took the crew two days to extinguish the fire aboard.
Russia’s China Pipeline Faces Delays. In an interview with the Financial Times, Mongolian Prime Minister L. Oyun-Erdene said construction of the 50 bcm Power of Siberia 2 gas pipeline to China may be delayed into 2025 as Moscow and Beijing are still ironing out their differences on the commercial side of supplies.
TMX Runs into Construction Delays Again. Canada’s Trans Mountain Expansion pipeline will now be completed only in Q2 2024 after the project operator ran into technical issues whilst pulling the pipeline through a tunnel, leading to a two-month delay in the start of line fill, planned for February.
Bakken Rebounds Quicker than Expected. Crude production in North Dakota has recovered quicker than initially assumed after the cold snap shut some 700,000 b/d of output, with current production levels only 30,000-80,000 b/d below normal readings according to the ND Pipeline Authority.
US Buys May SPRs, Signals Price Risk. The US Department of Energy bought 3.1 million barrels of crude as part of its May strategic petroleum replenishment plan at an average of $78.14 per barrel, with market watchers believing DoE is frontloading purchases amidst rising crude prices.
India Signs Up For Emirati LNG. Adnoc, the national oil and gas company of Abu Dhabi, has signed a 10-year supply deal with India’s state-controlled gas distributor GAIL to supply 0.5 million tonnes per year of LNG, to be sourced from its upcoming 5.6 mtpa capacity Das Island export terminal.
Henry Hub Plunges on Mild Weather. As the February contract of Henry Hub futures expired this week, US natural gas prices declined to $2.08 per mmBtu on the heels of forecasts of above-average warm weather across the country next two weeks, capping inventory withdrawals after a cold January.
Freeport LNG, the Unlikely Victim of the Arctic Freeze. US liquefaction company Freeport LNG said it expects one of its three liquefaction units, with a capacity of 0.7 bcf per day, to be out of service for a month after the Arctic blast damaged a refrigeration electric motor that now requires replacement.
Chinese Copper Smelters Call for Output Cuts. China’s top copper smelters have called for a joint production cut amidst collapsing prices of Cu concentrate, with spot prices as low as $25 per metric tonne, a mere quarter of the benchmark $80/mt price agreed between producers and smelters.
Petrobras Drills First Equatorial Margin Well. Brazil’s national oil company Petrobras (NYSE:PBR) drilled its first-ever exploration well in the frontier Equatorial Margin, finding hydrocarbons with the Pitu Oeste well but unsure of its commercial viability, potentially opening up a new upstream play.
Canada Mulls Pausing LNG Projects. The Biden administration’s decision to halt LNG project approvals has raised concerns that Canada’s province of British Columbia might follow suit, with the 12 mtpa Ksi Lisims liquefaction facility still yet to receive the green light ahead of the October election.
By Michael Kern for Oilprice.com
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