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Chart of the Week
Freight Is the Oil Market’s New Achilles Heel
- The major shifts in oil trade flows seems to be triggering a new form of upheaval, with tanker freight rates ballooning on low vessel availability amid increasingly longer supply routes.
- Following the recent Aframax and Suezmax freight surges, chartering demand has shifted to VLCCs, pushing freight rates to the highest level since May 2020, with daily earnings above $45,000 in all trading regions.
- According to Platts, monthly VLCC shipments are set to surge 26% in Q3 to 135 loadings as conducive arbitrage is beckoning US, Middle Eastern and Western African exporters alike to target Asia.
- For a U.S.-to-China VLCC delivery the lumpsum prices have soared to $10.7-10.8 million, equivalent to $5.1-5.2 per barrel, yet even at this level it is still more profitable than chartering a Suezmax.
- Germany is expected to announce the nationalization of the country’s largest gas importer, the ailing Uniper (ETR:UN01), tomorrow, in a deal that is to cost Berlin more than €30 billion.
- U.S. energy major Chevron (NYSE:CVX) is reportedly selling its stakes in three non-operated Alaskan oilfields with bids due this month, in a move that could fetch some $500 million.
- Privately owned Gulf of Mexico-focused U.S. upstream company QuarterNorth is considering a potential sale worth more than $2 billion, cashing out whilst prices are still high.
Tuesday, September 20, 2022
One would be tempted to think that news of ever-increasing OPEC+ underproduction or further Nigerian and Kazakh production outages would have a sizable impact on oil prices, however, over the past 4-5 trading sessions ICE Brent has been immune to the wild volatility seen for most of this year. The reason is that supply/demand no longer dictates the main pricing trends, macro data does, hence all eyes are firmly fixed at the Fed’s upcoming policy meeting this Wednesday.
OPEC+ Underproduction Is Still Spectacular. The gap between OPEC+ production targets and actual output continues to widen, reaching 3.6 million b/d in August, a whopping 0.7 million b/d month-on-month increase amidst worsening compliance from Russia and Nigeria.
Venezuela’s Best-Performing Refinery Still Ablaze. Venezuela’s 190,000 b/d Puerto La Cruz refinery is still on fire after a lightning hit a water treatment oxidation lagoon, only several days after another fire cause by a ruptured hose on a gasoline-loading cargo.
Germany Takes Over Russian-Owned Refineries. The German government placed all three refineries in which Russia’s Rosneft (MCX:ROSN) has stakes under the trusteeship of the Federal Network Agency, a move that might trigger further retaliation from the Russian side.
U.S. Coal Producers Hedge Against Fuel Prices. With U.S. diesel inventories recording the lowest level in decades, surface coal miners across the country have started linking sales agreements to diesel indexes as prices of the distillate fuel continue to hover around $5/USG, a 75% year-on-year hike.
Faltering Nigeria LNG Stokers European Fears. With oil and gas production in Nigeria markedly impacted by theft and sabotage, long-term buyers of the country’s LNG output such as Portugal are worriedly anticipating the upcoming months as Bonny LNG continues to operate at 60% capacity.
Kazakhstan Supply Woes Seem to Never End. Producing at reduced rates since early August, the supergiant Kazakh field Kashagan will not return to full production capacity until at least October, according to the country’s energy minister, struggling to contain an earlier gas leak.
Adding Salt to Germany’s Nuclear Injury. One of Germany’s two remaining nuclear reactors, the Isar-2 plant will be forced to go offline in October for repairs after a leak was detected this week, only to be halted completely by December 31, 2022.
U.S. Warns Africa Against Huge Gas Projects. U.S. climate envoy John Kerry cautioned against investing in long-term gas projects in Africa, a continent where 43% of the population lacks access to electricity, saying that recouping investments will be difficult as renewables are to be given top priority.
Turkey and Russia Settle Nuclear Discrepancies. Presidents Tayyip Erdogan and Vladimir Putin had reached a deal resolving a dispute over the Russian-built Akkuyu nuclear plant in Turkey’s south, with Turkish contractor IC Ictas recapturing the deal to build the $20 billion project.
European Power Solidarity Under Threat. According to media reports, France’s state-controlled utility firm EDF (EPA:EDF) had sent a written notification to Italy it may halt electricity exports to the country, potentially even up to 2 years, due to its ongoing problems with nuclear generation.
Chinese Coal Production Hampered by Rains. Putting an end to a hot streak of record high production, China’s daily coal output slipped to a three-month low of 11.95 million tons per day amidst heavy rains in Inner Mongolia and Shaanxi as well as ongoing lockdown measures.
The Netherlands Moves to Cap Energy Prices. The Dutch government will cap gas and electricity prices at their January 2022 level from January onwards, also obliging energy companies not to cut off any customers in the coming six months, a move that it expects to cover by hiking wealth and corporate taxes.
Nigerian Oil Output Forecast Remains Dire. Just as Nigeria’s oil production dropped to a multi-decade low of 1.18 million b/d last month amidst sabotage and oil theft, output is set to drop even lower as the 225,000 b/d Bonga field will be shut for maintenance in October.
By Tom Kool for Oilprice.com
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