Recession Fears Loom Over Oil Markets Once Again

Oil prices soared at the start of the week as OPEC+ shocked markets with a production cut announcement, but prices have since been capped by growing fears of demand destruction due to economic woes. 

Friday, March 31st, 2023

Following the explosive rally in oil prices seen earlier this week, additional increases have been sluggish despite notable stock draws in both US crude and product inventories. With US demand coming back after a weak Q1 and OPEC+ getting really serious about curbing production, supply-side factors appear to indicate further upside. At the same time, macroeconomic woes might once again spoil the party, especially if weak US labor market data rekindle the fire of demand destruction.

Recession Fears Weigh on Diesel Prices. In contrast to rising oil prices, the premium of diesel against Brent or WTI has been shrinking for the past six months with its crack now at $130/mt as its cyclical sensitivity makes it vulnerable to declines in business activity and lower manufacturing orders. 

Kurdish Crude Officially Back to Markets. The Iraqi federal government and Kurdistan’s regional authorities have signed a temporary deal to resume oil exports through Turkey and bring back some 450,000 b/d of Iraqi crude as the two-week standoff forced producers to halt production. 

French Court Rules Against Requisitioning. A tribunal in the French city of Rouen ruled that a government order mandating that workers of TotalEnergies’ (NYSE:TTE) halted 240,000 b/d Gonfreville refinery return to work is illegal, indefinitely suspending the requisition order. 

US Major Wraps Up Brazil Drilling Campaign. US oil major ExxonMobil (NYSE:XOM) will exit its self-operated license blocks in offshore Brazil after its exploration drilling program, comprising wells in the Campos, Santos, and Sergipe-Alagoas basins, failed to wield any commercial discovery. 

Asian LNG Prices Bottom Out. Spot LNG prices in Asia are at the lowest level since July 2021, with cargoes for May delivery into northeast Asia changing hands around 12.50 per mmBtu, as weak Chinese buying and high stocks in OECD Asia keep any pricing upside firmly capped. 

US to Tighten Power Plants Emissions Rules. The US Environmental Protection Agency is set to tighten emission standards for filterable particulate matter such as mercury and other toxic metals from coal plants, forcing the most polluting plants in North Dakota and Texas to cut emissions by 70%. 

Court Can Rule on Guyana-Venezuela Border. The International Court of Justice said they had jurisdiction over a long-running territorial dispute between Guyana and Venezuela that boils down to an 1899 arbitration ruling, in a blow to Venezuela's attempts to derail court proceedings ever since Guyana’s 2018 appeal.

Kazakhstan Sends Oil Majors into Arbitration. The government of Kazakhstan is taking the operators of the Kashagan and Karachaganak fields, No.2 and No.3 producing assets in the country, to arbitration on grounds of unapproved spending, arguing they’ve unlawfully tax-deducted costs of $13 billion and $3.5 billion, respectively.

Private Equity Cashes Out with Shale M&As. As US PE firms have gotten the appetite for oil equity sales, one of the largest players in the Permian Basin NGP Energy Capital Management is reportedly exploring the sale of Tap Rock Resources and Hibernia Resources for more than $7 billion. 

Chinese Companies Banned from Dutch Grid Upgrade. As the Dutch grid operator TenneT awarded UK-based energy service firm Petrofac (LON:PFC) with a $14 billion contract to upgrade the country’s grid to accommodate more wind power, it turns out Chinese companies were deliberately banned from the tender. 

Qatar’s Entry into Iraqi Project Saves the Day. Resolving a long-standing dispute between French major TotalEnergies (NYSE:TTE) and Baghdad on the $10 billion Gas Growth Integrated Project, aimed at ramping up the country’s gas production, the two sides agreed to let QatarEnergy into the project, allotting 25% to the NOC.

Mexico Nationalizes Power Plants. The Mexican government will buy 13 power plants from Spanish renewables firm Iberdrola (BME:IBE) in a deal worth $6 billion, as Mexico’s President Lopez Obrador hails a new nationalization of the electricity market, giving the state power company CFE control over the market. 

South Africa Revokes “State of Disaster”. Following two months of intermittent power supply, the government of South Africa revoked a national state of emergency that gave it additional powers to cut through bureaucratic delays and expedite decisions, after several NGOs challenged the measure in courts. 

India Readies to Launch LNG Terminal. The 5 mtpa capacity Dhamra LNG import terminal, the first such facility in eastern India jointly developed by TotalEnergies (NYSE:TTE) and Adani Group (NSE:ADANIENT), has received its first cargo this week and will be commissioned within the upcoming weeks.

By Michael Kern for Oilprice.com

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