Oil Gains Momentum as China's Demand Outlook Improves

Oil prices are steadily increasing, with this week's momentum bolstered by drone strikes on Russian refineries in Ukraine.

- Prices of medium sour grades produced in the US Gulf of Mexico, most notably Mars, have shot up as US energy officials reiterated their plans to keep on replenishing SPR barrels over the summer months, with Mars now trading at a $0.90 per barrel premium to WTI.

- The announced plans of the Biden administration to keep on buying as long as oil stays at $79 per barrel or below might run into difficulties as front-month WTI futures have surged past $83 per barrel this week.

- The latest iteration from the US Energy Department called for bids to be delivered in August and September worth 3 million barrels, specifically targeted the recently revamped Bayou Choctaw storage site in Louisiana. 

- As of mid-March, the Department of Energy has bought a total of 29.61 million barrels of crude, all of it going to the Big Hill SPR site, at an average price of $76.57 per barrel, equivalent to 16% of the 180 million barrels released back then.

Market Movers

- Argentina’s national oil firm YPF (NYSE:YPF) launched a tender for engineering works on a proposed floating LNG export terminal it intends to build alongside Petronas, a first step towards shipping its shale gas output abroad. 

- Italy’s oil firm ENI (BIT:ENI) wants to spin off separate units specializing in carbon capture and biochemicals, eyeing to either attract investors or be listed on the stock exchange. 

- France’s energy major TotalEnergies (NYSE:TTE) announced they would be expanding in the US shale patch with an upstream acquisition in Eagle Ford, eyeing an integration between their LNG and upstream positions. 

Tuesday, March 19, 2024

Oil prices continue their gradual creep upwards, with this week seeing additional impetus coming from Ukraine’s drone strikes on Russian refineries as well as key OPEC+ members Saudi Arabia and Iraq agreeing to export less crude over the upcoming months. Saudi Arabia will be supplying less as it ramps up domestic refining, Iraq will be cutting its exports after several months of undercompliance with OPEC+ commitments. With the outlook on Chinese demand improving into the summer, $90 per barrel is no longer that far away.

U.S. to Replenish SPRs by Year-End. Despite the current pace of buying 3 million barrels each month, U.S. Energy Secretary Jennifer Granholm vowed that at the end of this year US strategic crude stockpiles would be at or exceeding the level prior to the 180-million-barrel release in 2022.   Related: The Gas Find That Could Transform Europe’s Energy Future

Saudi Aramco Warns Against Peak Oil Demand. Saudi Aramco CEO Amin Nasser said global oil demand will not peak for some time and policymakers around the world should abandon the “fantasy of phasing out fossil fuels”, expecting demand to reach a new high of 104 million b/d in 2024.

Iraq Ought to Compensate for Weak Compliance. Having produced significantly more than its 4 million b/d production quota, Iraq has pledged to cut its crude exports to 3.3 million b/d in the coming months to compensate for its overproduction, with Saudi Energy Minister Prince Abdulaziz in Baghdad this week.

Alberta Oil Producers Gauge Water Shortage Impact. Faced with drought for the fourth straight year, the government of Alberta started water-sharing negotiations among license holders that might impact oil production as scarce water resources would limit drilling. 

Reverse Climate Activism Goes Full Steam. Three US right-wing groups have sued the Biden administration this week over its approval of Dominion Energy’s (NYSE:D) Coastal Virginia Offshore Wind project, saying it should be halted pending a new analysis of environmental risks to whales. 

China’s Coal Output Lags Expectations. China’s production of thermal coal has dropped for the first time in years, down 4.2% from a year earlier at 705 million tonnes for January-February combined, with mine safety checks hindering output while coal-fired power generation keeps on rising. 

Colombia Opts for Gas as Gasoline Subsidies End. After Colombia scrapped gasoline subsidies, the price of the fuel soared to $3.75 per gallon this month, prompting thousands of owners to retrofit their cars to natural gas with conversions already up by 63% last year and accelerating further in 2024.  

The Season of Solar Layoffs Starts. The world’s largest solar manufacturer, Longi Green Technology (SHA:601012) said it would lay off about 5% of its employees amidst shrinking margins and global production overcapacity, however, will not fire 30% of its workforce as was rumoured. 

Venezuela Prepares for Offshore Licensing Round. Venezuela’s Ministry of Petroleum signed a deal with a UK seismic surveyor to cover the country’s offshore waters, using the temporary respite in US sanctions to set the scene for an offshore licensing round geared towards gas fields.

Nippon Steel Wants to Appease White House. Confronted with the Biden administration’s opposition to a proposed $15-billion takeover of US Steel by Japan’s Nippon Steel (TYO:5401), the Japanese conglomerate vowed to move its US headquarters to Pittsburgh if the deal goes through.

Guyana Is the Gift that Keeps on Giving. US oil major ExxonMobil (NYSE:XOM) reported another oil and gas discovery in Guyana’s prolific Stabroek offshore block, with its recently spudded Bluefin well encountering 197 feet of hydrocarbon-bearing sandstone in 4,244 feet of water. 

Russia to Install Defense Missile Systems at Oil Facilities. Russia intends to defend its oil and gas facilities with missile systems such as the Pantsir anti-aircraft weapon, with the most recent wave of Ukrainian drone attacks halting bringing the total shut-in refining capacity to 370,000 b/d. 

Germany Signs Up for Emirati Gas. Germany’s state-controlled trading firm Sefe, formerly Gazprom Germany, signed a 15-year deal with the national oil company of the UAE, ADNOC, under which it will supply 1 million tonnes of LNG per year to Germany for 15 years beginning in 2028. 

By Tom Kool for Oilprice.com

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