Oil prices jumped dramatically on Tuesday morning as Saudi Arabia announced it would extend its production cuts until the end of the year and Russia announced it would extend its export cuts of 300,000 bpd for the same period.
Chart of the Week
- Russia extended its voluntary decision to curb crude exports by 300,000 b/d until December 2023, acting in concert with Saudi Arabia, with the alleged aim of maintaining stability and balance in the oil markets.
- In the meantime, Russian seaborne crude and product exports fell to their lowest since September 2022 as strong domestic demand in the summer kept volumes available for external markets capped.
- Delivering on their promise to cut exports by 500,000 b/d in July-August, Russian flows to India decreased by 30% to 1.5 million b/d, just as Urals has been trading above the oil price cap threshold of $60 per barrel since early July.
- Lower Russian crude exports will ease the task of the country’s exporters as they are set to rely more on their shadow fleet, the utilization of which rose to 40-45% of all oil exports in July-August, avoiding G7 shipping and insurance.
Market Movers
- Chinese oil major Sinopec (SHA:600028) has created a new business unit to invest in refining and petrochemical assets outside of China, rekindling rumors that it might buy Shell’s Singapore refinery.
- US lithium major Albemarle (NYSE:ALB) upped its takeover bid for Australian producer Liontown Resources (ASX:LTR) to $4.3 billion, with the latter’s board unanimously recommending shareholders to accept.
- Following several multi-billion-barrel discoveries in Namibia, the latest exploration well by energy major Shell (LON:SHEL) in the country, Cullinan-1X, failed to discover any hydrocarbons, dampening optimism.
Tuesday, September 05, 2023
ICE Brent prices jumped above $90 per barrel after Saudi Arabia and Russia extended their supply curbs until December 2023, with the former maintaining production cuts of 1 million b/d whilst the latter keeping oil exports lower by 300,000 b/d. With Chinese manufacturing data finally bouncing back to growth in August, the bearish sentiment is gaining the upper hand in oil markets right now.
Saudi Arabia Extends Productions Cut. Publishing its press release in unison with Russia’s export cut pledge, Saudi Arabia decided to extend its voluntary production cut of 1 million b/d for three months until December 2023, with any prospective supply changes to be reviewed on a monthly basis.
Low Diesel Inventories Stoke Shortage Fears. Low US distillate inventories could make heating oil prices be susceptible to sudden shocks this winter as stocks of diesel and heating oil remain 15% below five-year average rates, at 118 million barrels or 31 days of supply.
Brazil Calls Off Petrobras Divestment Drive. Brazil’s national oil company Petrobras (NYSE:PBR) stated it would no longer seek to sell some of its key assets, including the Urucu and Bahia-Terra onshore fields and Petrobras Operaciones, its subsidiary in Argentina, following a broad strategy revision.
US Backs Chevron in Cyprus Strategy Row. The US government supported Chevron’s (NYSE:CVX) plans to connect its Cyprus gas finds to Egypt’s existing LNG terminals, a move the Cypriot government opposes, saying the linkage would bring stability to the region and allow for more exports.
No Plans to Change Russian Price Caps. The G7 coalition is not planning to change the current crude and product price caps on Russian exports, said US Treasury official Eric van Nostrand, saying the existing sanctions were effective in limiting Russian revenues while ensuring a well-supplied market.
Venezuelan Exports Plummet Amidst Upgraded Outages. Venezuela’s exports fell 38% month-on-month to 544,000 b/d after a three-year high in July as PDVSA struggled to keep crude upgraders in service, with a quarter of those volumes coming from US major Chevron (NYSE:CVX).
Saudi Aramco Eyes SPO to Boost Revenue. Saudi Arabia’s national oil company Saudi Aramco (TADAWUL:2222) is considering selling as much as $50 billion in a secondary share offering on the Riyadh stock exchange, potentially looking to carry the SPO out before year-end.
ADVERTISEMENT
Panama Canal Gets Out of Control. The average waiting time for non-booked tankers at the Panama Canal jumped by 50% in August to roughly 9 days as a prolonged drought led to transit restrictions, with canal authorities now only allowing 32 vessels to pass, also limiting their draft to 44 feet.
German Government Sees Nuclear as ’Dead Horse’. German chancellor Olaf Scholz stated the European country will not reopen its nuclear debate, calling nuclear a ’dead horse’ in Germany, just as its government is striving to cap electricity prices for industry by means of state subsidies.
Taliban Bags Multi-Billion Mining Deals. The Taliban claims it has signed seven mining contracts that would bring $6.5 billion in investment as Afghanistan seeks to tap into its iron ore, lead, zinc, gold, and copper deposits, with local companies teaming up with partners from China, Iran, and Turkey.
Majors Quit Nigerian Onshore Projects. Following in the footsteps of ExxonMobil (NYSE:XOM) and Shell (LON:SHEL), Italian oil major ENI sold its Nigerian onshore subsidiary to local upstream firm Oando for an assumed sum of approximately $500 million, focusing exclusively on offshore projects.
Typhoon Triggers China’s Offshore Shutdown. Supertyphoon Saola disrupted China’s offshore crude output as the country’s key deepwater producer CNOOC (HKG:0883) evacuated more than 10,000 workers from offshore production platforms.
Chevron Turns on Emergency Mode in Australia. With the first phase of strikes at Chevron’s (NYSE:CVX) Gorgon and Wheatstone LNG platforms in Australia’s offshore set to start this Thursday and unions planning a total strike from September 14, the US major started expedited mediation talks.
By Michael Kern for Oilprice.com
More Top Reads From Oilprice.com:
- Oil Soars Above $90 As Saudi Arabia Extends Deep Output Cuts
- BMW: Gasoline Car Ban Poses “Imminent Risk” To European Automakers
- Commodity Trader Trafigura Sees Upside Risk For Oil Prices
The Saudi cut has nothing to do with the market and everything to do with Saudi production difficulties. Saudi production is falling because of depletion and aging giant oilfields. After all, 90% of Saudi production has for the past 74 years been coming from five giant but aging and fast-depleting oilfields (Ghawar, Safaniya, Hanifa, Khurais and Zuluf ) all of which are more than 74 years old and are being kept producing by a huge injection of water.
As for Russia extending its export cut of 300,000 barrels a day (b/d), it is more of a solidarity with Saudi Arabia. Moreover, I believe this would hardly affect total Russia exports. The reason is that a rise of tax on domestic petroleum products may have led to a decline in consumption thus enabling Russia to offset the cut and maintain its exports at pre-cut levels.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert