Bullish sentiment has taken over oil markets, with long positions outnumbering short positions by 13 to one as OPEC resists pressure to ramp up production.
Chart of the Week
- With ICE Brent spiking above $90 per barrel earlier this week, the focus of the oil industry is increasingly on stock changes across the globe as inventories in OECD nations plunged to a 7-year low.
- Commercial crude stocks in the US have seen some optimism lately with another stock build expected this week, but combined crude and product stocks are still some 100 million barrels below the 5-year range.
- The historically below-average levels of crude inventories are in a large part a consequence of OPEC undershooting its supply commitments.
- According to Reuters data, OPEC+ missed its oil production target by an average rate of 800,000 b/d last year as most countries have hit their spare capacity limits.
Market Movers
- Following a cyberattack on German logistics firm Marquard & Bahls on Tuesday, UK major Shell (NYSE:RDS.A) saw the operations of fuel stations across Northern Germany debilitated and was forced to reroute oil supplies.
- US major ExxonMobil (NYSE:XOM) announced plans to restructure its operations - combining its refining and chemicals units into one, elevating its energy transition to a main business line and moving its headquarters to a new campus north of Houston.
- French oil firm TotalEnergies (NYSE:TTE) will seek to restart its $20 billion Mozambique LNG project off the African country’s coast this year, one year after an Islamic State-linked insurgency devastated the adjacent regions.
Tuesday, February 01, 2022
As we have indicated previously, insufficient OPEC+ production combined with a string of supply disruptions across the globe have led to the most bullish market in 8 years, with month-on-month backwardation wider than $1 per barrel throughout most of 2022. For every WTI short position, there were 13 long positions on futures contracts in the week to 25 January, indicating that the anticipation is of further tightness down the line. Soaring long positions also attest to the market’s belief in robust demand going forward - if anything, easing mobility restrictions in several European countries point towards Omicron concerns weakening overall, despite cases hitting all-time records.
OPEC+ Expected to Continue Adding Crude. OPEC+ is expected to stick with its monthly 400,000 b/d increments as it reconvenes for a ministerial meeting on the second of February, with the oil group so far resisting external pressure to ramp up production more quickly.
Iran Claims Significant Headway Made in Nuclear Talks. Iran’s Foreign Ministry stated that the eighth round of Vienna talks that seek to restore the 2015 nuclear deal made ‘significant progress’, with parties returning to their countries for consultations after drafting a roadmap for sanctions relief and the prospective deal’s verification schemes.
EU Reconsiders Nord Stream 2 Amid Ukraine Tensions. The European Commission has put Gazprom’s (MCX:GAZP) Nord Stream 2 pipeline on hold as Brussels is repeatedly looking into the project’s compliance with Europe’s energy policy.
Oklahoma Earthquake Triggers Regulator Probe. Oklahoma’s oil and gas regulator announced it would shut several saltwater disposal wells following a 4.5 magnitude earthquake in an area previously prone to quakes, with more measures expected as higher drilling activity triggers more tremors.
Cold Weather Forecasts Push US Natgas Higher. Just as US natural gas futures netted their first monthly gain since September, the Henry Hub March-delivery contract rose further this week, trading around $4.9 per mmBtu on the back of colder-than-usual forecasts for the next two weeks.
Get Ready for a Zinc Price Storm. Following a recent announcement by zinc smelterNyrstar (EBR:NYR) that it would place in Auby smelter in France on care and maintenance due to high power prices, spiking prices indicate a huge gap in Europe’s supply and increasing its dependence on Asian imports.
Norway LNG Delay Jeopardizes Europe Supply. Norway’s Hammerfest LNG is due for another delay as it is still yet to restart production after a fire in September 2020, with operator Equinor (NYSE:EQNR) announcing that it expects to resume output in May 2022, two months later than previously assumed.
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Iran Supplies Condensate to Venezuela Again. This week will see the arrival of Starla, another Iranian VLCC tanker carrying condensate from the Middle Eastern producer to Venezuela’s main port of José, providing PDVSA with a key diluent for its heavy grades as it gradually ramps up production.
Top UK Geologist Warns Against CO2 Storage. The UK’s leading geologist John Underhill warned that large-scale CO2 injection plans need to be reviewed over leakage and that many areas where storage is to overlap with offshore wind farms would see marine monitoring obstructed.
Libya Wants to Tap into its Renewables. Still dependent on crude burning and domestic natural gas for electricity generation, Libya’s NOC wants oil fields to run on solar energy – a development that could save up to 20% of the country’s budget, though Tripoli lacks funding to invest in renewables properly.
Kuwait and Saudi Arabia Want More Neutral Zone Production. Riyadh and Kuwait are pressing ahead with plans to ramp up production from the jointly developed Neutral Zone, with output currently trending some 300,000 b/d, some 200,000 b/d below nameplate capacity - this is good news for Chevron (NYSE:CVX), operator of the onshore Wafra field.
Germany Wants to Scrap Clean Energy Levy. With German base power prices still trading around 150 per MWh ($170/MWh), the government in Berlin is mulling the cancellation of a levy on electricity bills used as a cross-subsidy of renewable projects, as households are set for a 60% power price hike this year.
China Goes ‘Scientific’ on Iron Ore Prices. Following a 60% rise in iron ore prices since November, China’s economic planning body NDRC said it would supervise the pricing of iron as there have been ‘many abnormal fluctuations’ over the past weeks, depressing the stock value of main iron ore producers.
By Josh Owens for Oilprice.com
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