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Oil Jumps, but Another Downward Slide Seems Likely

Offshore

WTI crude gained more than 2% on Tuesday morning, erasing some of Monday's losses, but increasingly negative sentiment in oil remains a prime risk.

Start to 2024 Oil Trading Looks Increasingly Bearish

- Hedge funds and other money managers are increasingly bearish on the oil markets’ outlook, adding a combined 61,000 short positions in Brent and WTI crude in the week to January 2.

- This marks the largest week-on-week increase in short positions since March and the second largest since mid-2017, brushing aside ongoing Red Sea shipping woes or Libyan supply disruptions.

- Whilst the markets were abuzz on Saudi Arabia’s pricing cuts, the rebalancing of commodity indexes from Goldman Sachs or Bloomberg in 2024 might have had an ever bigger impact. 

- The BCOM target index for WTI decreased from 7.77% to 7.36%, prompting Citigroup to assess the impact of funds exiting WTI length at around $2 billion, the equivalent of 27,000 long positions.

Market Movers

- UK-based energy major Shell (LON:SHEL) signed a 20-year LNG supply deal with Ksi Lisims LNG, a consortium of Canadian gas producers, for 2 million metric tonnes a year starting from 2030.

- US refining major Phillips 66 (NYSE:PSX) is actively discussing the sale of some of its non-core assets for $3 billion, under pressure from activist investors Elliott Investment Management. 

- South Korea’s leading EV battery maker LG Energy Solution (KRX:373220) posted Q4 results that were almost half of the expected $460 million, including a $191 million tax credit from the US government. 

Tuesday, January 09, 2024

The combined effect of hedge funds’ massive selling and Saudi Arabia cutting its February formula prices for all continents created a perfect storm for oil prices, sending WTI below $70 per barrel in intraday trading again. Both Brent and WTI have recovered since as Libya called force majeure on Sharara operations and the US dollar halted its upward surge, however weakening sentiment might prompt another downward slide this week.

Saudi Arabia Price Cut Stokes Demand Fears. Saudi Aramco slashed its February-loading prices for Asian customers by $2 per barrel, bringing the price of Arab Light to the lowest level since November 2021 at $1.50 per barrel over Oman/Dubai, prompting concerns that Asian demand feels weak.

Nigeria’s Megarefinery to Start Test Runs This Week. According to Nigerian sources, Nigeria’s  650,000 b/d Dangote refinery could begin test runs as early as this week after receiving six crude cargoes from the country’s offshore fields, aiming to reach full capacity refining by year-end.

US Supreme Court Dismisses Case of Oil Majors. The US Supreme Court declined to hear the case of ExxonMobil (NYSE:XOM), Koch Industries and the American Petroleum Institute, deciding that lawsuits over the oil industry’s “deceptive” actions vis-à-vis climate science should be heard in state courts.

Copper Contango The Steepest Since 1992. As the metal markets expect copper demand to perk up later this year but LME inventories remain ample at 161,725 metric tonnes, contango in the LME copper contract, the discount of cash futures to the 3-month contract, has widened to a 31-year maximum of $107/mt. Related: U.S. Defense Official Visits Guyana Over Threat To Oil-Rich Essequibo

Chesapeake Set to Seal Next Major M&A Deal. Following last month’s Occidental-CrownRock deal, the merger of US natural gas producers Chesapeake Energy (NASDAQ:CHK) and Southwestern Energy (NYSE:SWN) is reportedly entering its final phase to create a $17 billion shale gas champion.

Iran Wants Higher Prices from Chinese Refiners. Iran’s oil exporters are withholding shipments to China as they demand narrower discounts, with recent offers heard around $5 per barrel below Brent on a delivered basis, squeezing the supply options of Chinese “teapot” refiners.

Libya Calls Force Majeure on Shut Field. Libya’s National Oil Corporation declared a force majeure at its 300,000 b/d Sharara oilfield as ongoing protests made it impossible to carry on with normal operations, also suspending crude deliveries to Libya’s largest eastern port of Zawia.

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Leaking Gulf of Mexico Pipeline Remains Shut. The million-gallon oil spill from the Main Pass Oil Gathering pipeline in November remains a mystery as investigators still failed to discover the subsea source of leakage, keeping some 61,000 b/d of oil production in the Gulf of Mexico shut.

Venezuela Unable to Lift Production Soon. Venezuela’s Oil Ministry reported that oil production in the country rose slightly to 802,000 b/d in December, underperforming the 1 million b/d year-end target set by President Maduro as output remains lower than in the summer months, despite the lifting of sanctions.

ADNOC Eyes Turkmenistan’s Gas Bounty. ADNOC, the national oil company of the UAE, has signed a memorandum of understanding with Turkmenistan to cooperate in the development of the supergiant 265 TCf Galkynysh gas field, boosting the odds of the field 3rd phase coming together. 

Cold Snap Sends Gulf Freight Skyrocketing. The arrival of a polar front bringing strong waves and high waves to Texas has debilitated ship-to-ship operations in the US Gulf Coast, halting most of lightering until at least Wednesday, sending regional Aframax and Suezmax rates to 2-month highs.

Namibia’s Production Outlook Turns Brighter. Boasting the multi-billion-barrel discoveries of Venus and Graff in 2021-2022, Namibia’s portfolio shines even brighter as Portugal’s Galp Energia (ELI:GALP) reported indications of hydrocarbons at its Mopane-1 exploration well to the northeast of Venus.

Japanese Firms Ramp Up Investment in US LNG. One of Japan’s largest utility companies Kyushu Electric Power (TYO:9508) is reportedly considering investing in Energy Transfer’s (NYSE:ET) Lake Charles LNG project and sign a 20-year LNG supply deal, locking in 1.5-1.6 million tonnes per year.

By Tom Kool for Oilprice.com

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