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The Impossible Task Of Keeping Oil Prices Grounded

Russia’s invasion of Ukraine and the resultant sanctions have sent oil prices soaring and not even a 60-million-barrel release coordinated by IEA members could stop the rally.

Chart of the Week

- UK-based oil major BP (NYSE:BP) became the first company to quit its Russian operations, abandoning its 19.75% stake-controlled Rosneft at a cost of some $25 billion, coming on the back of Russia’s intensifying invasion of Ukraine. 

- This was followed by several sovereign wealth funds, prime amongst them the Norwegian one with $2.8 billion worth of assets, announcing they would be winding down their exposure to Russian companies. 

- A long-time partner of Rosneft, present in Russia for over 30 years, Norway’s Equinor (NYSE:EQNR) also stated it would sell its stake in several JVs that developed heavy oil fields in Western Siberia, worth some $1.2 billion. 

- The last to join the initiative, Shell (LON:SHEL) will sell its 27.5% stake in the Sakhalin 2 LNG plant as well as its joint ventures with Gazprom, totaling some $3 billion in these assets. 

Market Movers

- US oil producer Chevron (NYSE:CVX) saw its shares rise to a record high of $150 as it vowed to double its share buyback program to $5-10 billion per year, simultaneously increasing its cash flow forecasts through 2026. 
- Nord Stream 2 AG, the Swiss-based operator of the eponymous pipeline is reportedlyconsidering filing for insolvency, seeking to settle claims ahead of a US sanctions deadline. 
- French energy firm TotalEnergies (NYSE:TTE) emerged as the main winner of last week’s US offshore wind auction, landing a 3GW plant deal in the New York Bight concession for $800 million, the major’s largest renewable project so far. 

Tuesday, March 01, 2022

Once again, a fairly sound idea of releasing 60 million barrels from strategic inventories held by IEA members went almost completely unnoticed by the oil markets. Instead, Russia remains the number one topic on the agenda - after its Central Bank was sanctioned, several banks cut off from SWIFT, new debt and equity was restricted even more than they used to be, and the prospect of seeing some 4.7 million b/d of crude flows (Russia’s average crude exports this year so far) sealed off grows. Despite the heavy-hitting sanctions and a string of oil majors hurriedly leaving Russia, there are very few signs that the Kremlin’s invasion of Ukraine will end soon. Uncertainty remains rife in oil markets and the price of both WTI and Brent are soaring. 

IEA Greenlights 60 Million SPR Release. Facing the prospect of prolonged high oil prices, IEA members reportedly agreed on the release of 60 million barrels of oil from strategic storage, with half of the given volume coming from the United States. 

Goldman Sachs Sees a Commodity Rally Developing. An analytical note by Goldman Sachs (NYSE:GS) is predicting a tangible commodity spike for all things Russia-relevant starting as we speak, including oil, gas, palladium, nickel, wheat, and corn, lifting its one-month crude forecast to $115 per barrel already.

OPEC Defends African Oil Investments. OPEC secretary Mohammad Barkindo statedit would be a tragedy if African countries, still accounting for less than 3% of global emissions, would not be able to tap into their plentiful oil resources, saying the continent’s development needs should take center stage. 

EU to Connect Ukraine to Power Grid. The energy ministers of European Union members agreed to urgently link Ukraine’s power grid to the EU, as the East European country decoupled its grid from Russia so that the former could not control technical aspects such as grid frequency. 

Chevron to Buy $3 Billion Biodiesel Producer. US oil major Chevron (NYSE:CVX) is reportedly set to purchase the Iowa-based biodiesel maker Renewable Energy (NASDAQ:REGI) for a fee of $3 billion, as part of its 2050 net zero investment campaign. 

US Supreme Court Questions Federal Emission Regulations. The US Supreme Court is weighing the authority of the Environmental Protection Agency (EPA) to regulate greenhouse gas emissions from coal- and gas-fired plants under the Biden Administration’s Clean Air Act, potentially restricting its authority.

Germany to Build Two LNG Terminals. Wary of its dependence on Russian gas, Germany’s government decided to speed up the construction of two LNG terminals in Brunsbuttel and Wilhelmshaven (8 and 10 bcm per year, respectively, currently it has none), both located along the country’s North Sea coast. 

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China Mops Up Discounted Urals Cargoes. With two VLCCs chartered over the past couple of days to be loaded from the Skaw ship-to-ship transfer spot off Denmark, both by Chinese companies, it seems that Beijing is capitalizing on plummeting Urals differentials, down to a -$12/barrel discount to Dated. 

Kurdistan Disobeys Iraqi Federal Court. The Kurdish regional government rejected a ruling from Iraq’s federal court which had found that its oil-related activities are unconstitutional and should be handed over to Baghdad, saying the allocation of some 425,000 b/d of its production will remain in Erbil’s hands. 

Pemex Goes for Another Loss. Having reported a hefty Q4 loss of $6.05 billion on the back of higher taxes and currency losses, Mexico’s national oil company is set to become even more dependent on cash injections from the government – last year they totaled $10 billion. 

Total Defies Calls to Leave Russia. French major TotalEnergies (NYSE:TTE) turned out to be the only Western major to continue operations in Russia, however adding that it would no longer provide capital for new projects in the country. 

Iron Ore Prices Jump on Upbeat China Data. Dalian iron ore futures, Asia’s leading price benchmark, rose 5% this week to $115 per metric tonne, buoyed by China’s solid economic post-pandemic recovery and robust PMI performance. 

Wheat Continues Surge Amid Supply Fears. With Ukraine’s grain exports hindered by non-operational ports and Russia’s outflows suffering from sanctions, wheat futures continued their increases, with Chicago front-month wheat futures up 5% on the day, at $9.8 a bushel.

By Josh Owens for Oilprice.com 

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Leave a comment
  • Darrel Farris on March 03 2022 said:
    60 million barrels equals 60% of 1 day of world consumption, a drop in the ocean.

Leave a comment




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