News of an 'imminent' nuclear deal with Iran sent oil prices lower this week, but the reality of OPEC underproduction soon shifted sentiment and sent prices higher on Friday.
Friday, February 11th, 2022
Wherever you looked this week, it seemed that Iran was at the center of all oil market news. The prospect of a breakthrough in the nuclear deal, a breakthrough that was assumed to be imminent by several participants, drove oil prices lower over the week after last week’s bull run to mid $90s. The fact that Iran’s crude would take several months to reach markets if a deal were agreed upon shows that this was largely driven by sentiment. On the fundamental front, OPEC+ underperformance is potentially flirting with 1 million b/d in February, news that led even the IEA to get involved in pushing for more oil. The IEA joined the ranks of India and other major importers, all calling upon Middle Eastern exporters to bring more crude into the markets.
IEA Calls Out Saudi Arabia and UAE. The International Energy Agency (IEA) stated that Saudi Arabia and the UAE could use their spare capacity to compensate for the ever-worsening underperformance of OPEC+, with the missing volumes totaling some 800,000 b/d since the start of 2021.
Global Shortage Spreads to Diesel. Global shortages of diesel have become the new talk of the town as inventories in Northwest Europe fell to their lowest level since at least 2008, whilst Singapore gasoil stocks also dropped to multi-year lows of 8.2 million barrels.
Libya Gets Closer to the Brink, Again. The prospects of oil production in Libya were hampered after the eastern-based parliament in Tobruk named Fathi Bashagha the country’s new prime minister, unbeknownst to the other government in Tripoli, ratcheting up risks of further infighting.
Canadian Exports From USGC Keep on Soaring. Thanks to improvements in pipeline connectivity, Canadian oil producers exported record volumes of crude from terminals in the US Gulf Coast, reaching 300,000 b/d in December-January, roughly double what they were a year ago.
Qatar Is No Longer in the EU’s Crosshairs. With spot gas prices in Europe still trading above €70/MWh ($27/mmBtu) and Brussels seeking alternative sources of supply, the European Commission dropped its 2018 investigation into QP’s gas contract pricing (linking delivered prices to oil).
EU Admits Carbon Price Spike Might Be Too Quick. Peter Liese, the European Parliament’s lead negotiator tasked with an overhaul of Europe’s carbon market, said he was considering changes that would allow policymakers to intervene in carbon markets if prices rise too fast – just as the Dec ’22 contract trades within reach of €100/mt.
China Wants to Harness Desert Wind and Sun. China intends to bring total wind and solar capacity to 1,200 GW by 2030, almost double what it is right now, in a bid to become carbon-neutral by 2060, with major investments going into generation and grid upgrade projects in remote regions like the Gobi Desert.
Pressure Mounts Against Mexico Power Reform. Several top-ranking US energy officials have reached out to Mexico in a bid to halt the adoption of a power sector reform that would give the state-owned utility CFE a priority over other providers, jeopardizing Mexico’s renewable energy prospects.
Iran Ramps Up Crude Exports Amid Talks Progress. Iranian crude exports have risen to their highest since early 2019 as negotiations on the revival of the Iranian nuclear deal enter their final stage - both December and January saw outflows around 800,000 b/d, almost a quarter up year-on-year.
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TotalEnergies Doubles Down on US Solar. French oil major TotalEnergies (NYSE:TTE) bought the commercial and industrial solutions business of US solar company SunPower (SPWR) for $250 million as it seeks to extend its generation business to the United States.
Europe’s Shipper Warn of High Freight Costs in 2022. Europe’s leading shippers, amongst them container shipping firm Maersk (COP:MAERSK), have warned that freight costs are likely to remain high throughout 2022 as COVID-related disruption and a surge in consumer demand keep vessel availability limited.
Chinese Coal Prices Fall on Government Interference. Having gone up 24% on the year, China’s thermal coal futures fell this week to ¥835 per metric tonne ($130/mt) after China’s economic planning body stated it would crack down on companies inflating coal prices and vowed to do its utmost to stabilize prices.
France Bets on Nuclear as its Long-Term Power Champion. The French government confirmed its plans to build six new nuclear reactors worth some $60 billion in the decades to come, with President Macron stating that the first of the batch would come online by 2035 and might be followed by a further eight plants if required.
US Jet Fuel Prices Soar to Highest Since 2014. Boosted by a global tightness in middle distillates and record diesel demand, US jet fuel prices have risen to $2.75 per gallon, the highest they have been since September 2014, despite domestic production of roughly 1.5 million b/d surpassing consumption by almost 100,000 b/d.
By Josh Owens for Oilprice.com
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OPEC+ is doing its utmost to keep the market balanced. OPEC+ has enough spare capacity to keep the oil market balanced in both 2022 and 2023. Beyond that, it urgently needs to add more capacity. This means it has to start investing heavily in expanding capacity immediately as it normally takes up to 5 years before investment reaches fruition.
And instead of calling on Saudi Arabia and UAE to use their spare capacity to compensate for what the author of the article describes as the ever-worsening underperformance of OPEC+, why doesn’t the IEA call on US shale oil producers to raise their production? After all the IEA has been for years hyping about the potential and production of shale oil. Didn't the chief of the IEA Fatih Birol boast in 2018 that shale oil production is projected to be bigger than the combined production of Saudi Arabia and Russia by 2025? Or is the IEA afraid to expose the fallacy of the claims about a comeback of US shale to pre-pandemic levels?
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London