Oil markets are once again on edge about potential supply disruptions. The continued efforts by the EU to ban Russian oil imports and the renewed efforts by the U.S. Senate to pass the NOPEC bill would both result in supply disruptions.
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Friday, May 6th, 2022
Another week has passed with the European Union unable to agree on a comprehensive oil embargo on Russian crude, hindered by internal disagreements on the timeline of the phasing out. Should the draft see adoption, we might be in for another supply squeeze as OPEC+ has clearly indicated it values consistency over abrupt moves. Should the United States push forward with its NOPEC bill, the willingness of the oil group to satiate global demand might fall even further.
OPEC+ Rubberstamps Another 432,000 b/d Deal. In a meeting that lasted only 13 minutes, OPEC+ countries have agreed to increase their June 2022 production target by 432,000 b/d, avoiding any talk about sanctions on Russia and indicating global supply/demand picture is more or less balanced.
Russia Oil Ban Hinges on CEE Pushback. Despite Germany coming to embrace a Russian oil embargo, the European Union has still been unable to agree on a phase-out of Russian crude imports as most dependent countries like Hungary or Slovakia keep on asking for exemptions.
US Senate Committee Passes NOPEC Bill. A US Senate committee passed the NOPEC bill that was presented with bipartisan support, potentially revoking the sovereign immunity protecting OPEC countries and Middle Eastern NOCs from lawsuits, as high gasoline prices and inflation compel US lawmakers to take more aggressive action.
Vale Clinches Tesla Nickel Supply Deal. Brazil’s Vale (NYSE:VALE), the world's largest producer of iron ore and nickel, signed a long-term deal with EV carmaker Tesla (NASDAQ:TSLA) to supply it with nickel coming from its Canada operations.
India Stands by Its Increased Russian Buying. The Indian government defended its continued purchases of Russian crude, having bought more crude in April 2022 than over the totality of 2021, saying they were a part of a wider strategy to diversify away from the Middle East and keep fuel prices at bay. Related: OPEC+ Agrees To Boost Production By 432,000 Bpd In June
Venezuela’s Crude Exports Drop Amid Quality Issues. According to media reports, crude exports of Venezuela’s national oil company PDVSA fell 8% month-on-month in April to some 650,000 b/d as poor crude quality and limited upgrading capacity were limiting further upticks.
China Doubles Down on Its LNG Tanker Fleet. China’s state-controlled CNOOC (SHA:600938) has reportedly awarded 2.5 billion worth of contracts to build 12 liquefied natural gas tankers at the Hudong Zhonghua shipyards, seeking to grab a higher share of the LNG freight market in Asia.
Nordic Power Prices Rise to All-Time High. Front-year electricity prices in Europe’s Scandinavia have raised to an all-time high this week of €92 per MWh, driven by low hydro storage available in the south of Norway with the country’s total water reservoirs being only 22% full.
Wind Turbine Makers Looking Forward to Forgetting Q1. Wind turbine makers like Vestas (CPH:VWS), GE Renewable Energy (NYSE:GE), and Siemens Gamesa (BME:SGRE) all reported losses for the first three months of 2022, coming on the back of soaring raw material costs and increasing competition.
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Petrobras Sees a New Guyana in Its Northern Frontier. Brazil’s state-controlled oil company Petrobras (NYSE:PBR) is hoping to recreate the oil exploration success of Guyana in its northern offshore frontier, having decided to invest 2.5 billion in drilling the Equatorial Margin.
EU Countries Starts Replenishing Gas Inventories. Gas inventories in the European Union and the United Kingdom have seen steady increases over the past weeks with total stocks increasing to 380 TWh by 01 May as exceptionally high prices of gas have been discouraging consumption by power generators.
LME Bans Russian Lead from Market. The London Metal Exchange announced this week that it would stop trading Russian-produced lead and allowing it to its warehouses, stoking fears that a similar decision might take place on aluminum and nickel where its impact would be much more severe than the 2% uptick in lead.
Germany Charters 2 FSRUs to Cope with Russian Supply Risk. German utility firm Uniper (ETR:UN01) will charter two large FSRUs from Greek shipping firm Dynagas, each having a gas-send-out capacity of 7.5 bcm per year, to cope with a potential Russian gas supply cutoff.
India Pushes For Maximum Coal Supply. India is planning to reopen more than 100 coal mines previously considered financially unsustainable as heatwaves continue to batter power generation across the country, potentially staving off-peak consumption later into the late 2020s.
By Josh Owens for Oilprice.com
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However, disruptions could happen from either the EU banning Russian oil imports or Russia halting supplies of gas and oil because of the EU’s refusal to pay for them in rubles.
The EU proposed ban on Russian oil is looking increasingly doubtful in view of the increasing number of EU members opposing it with Hungary threatening to veto it. The chances that Russia could halt supplies are increasing by the day particularly if the EU continues to refuse to pay in rubles.
Unsubstantiated claims about declining Chinese oil demand have been put to rest by PetroChina, the country’s biggest oil and gas refiner, who said it sees a growing demand for fuels despite lockdowns in certain regions of China.
Even if NOPEC bill, officially referred to as the No Oil Producing and Exporting Cartels (NOPEC) Act becomes a law, it would neither affect global oil supplies nor affect OPEC production for the following reasons.
1- It is unenforceable against OPEC since OPEC isn’t a cartel. OPEC has never once tried to fix a specific price nor has ever been able to achieve this goal. For instance, OPEC was neither able to temper oil prices in 2008 when prices rocketed to $147 a barrel nor was it able to stop the 2014 oil price crash. When it comes to limiting oil supply, a true cartel like the “Seven Western Sisters” was able to do exactly that because it was virtually in control of global oil resources. OPEC only accounts for 70.1% of global proven reserves, 34.7% of the global oil market and 30.8% of exports. The United States and Russia account for 12% each.
2- If the United States tries to sue OPEC or any of its members, the organization could stop all its oil exports to the US. NOPEC will only have jurisdiction in the United States but no extraterritorial jurisdiction under international law.
3- If, however, the United States persists with mounting law suits against OPEC or its members, then they could retaliate by withdrawing their investments and funds in the US and replacing the petrodollar with the petro-yuan. That would be the most ever serious retaliation against the US.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London