It's been a week of mixed signals for oil markets, with a huge crude inventory build being partially offset by a diesel draw, and supply tightness battling with worrying inflation data and projections of demand destruction.
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Friday, October 14th, 2022
There were plenty of conflicting signals for the oil market to digest this week. Bearish news included an increase in crude stocks of almost 10 million barrels, a huge week-on-week change. U.S. inflation data was also worrying for oil, with the core consumer price index hitting a 40-year high in September. On the other hand, diesel inventories in the U.S. dropped by 4.9 million barrels, suggesting a troubling shortage ahead of winter. In Europe, strikes in France are adding to fuel supply fears, with one union walking out of talks today after rejecting an offer of a pay rise. The OPEC+ cut and a price cap on Russian crude are two other bullish factors looming over oil markets. Overall, oil prices have fallen this week, with both Brent and WTI set to post weekly losses after two weeks of gains.
OPEC Cuts 2022-2023 Demand Growth. Less than a month after the 2 million b/d production cut pledge, OPEC cut its demand growth figures for both 2022 and 2023, to 2.64 and 2.34 million b/d respectively, citing slowing economic growth, monetary tightening, and ongoing supply issues.
No More Sword Dance in Riyadh. The war of words between the US and Saudi Arabia has moved up a gear this week, with the White House claiming Riyadh pushed other OPEC+ nations into the joint production cut, concurrently proposing legislation to halt arms sales to the Middle Eastern kingdom.
UN Grain Deal Creaking at the Seams. In what might trigger another agricultural pricing storm, Russia has submitted its concerns to the UN about the implementation of the Black Sea grain exports agreement and pledged to quit the deal next month if the guarantees it was given are not met.
EIA Cuts US Production Growth. The US Energy Information Administration lowered its forecast for 2023 crude production in the United States to 12.4 million b/d, up from 11.7 million b/d this year, as capital discipline and a lowering global demand outlook weigh on production.
Suriname Surge Mired by Seismic Confusion. Three years have passed since Apache (NYSE:APA) and TotalEnergies (NYSE:TTE) claimed they have found the Maka Central world-class oil field in offshore Suriname, but recent appraisals unveiled a huge mismatch between seismic and exploration drilling data, rendering the task of locating the field much more difficult.
Iraq Might Finally Have a New Government. The Iraqi House of Representatives elected Abdul Latif Rashid as the country’s new president, paving the way for a new government to be formed after a prolonged political paralysis and providing a huge boost to stalled major oil projects.
White House to Unveil Gas Price Reduction Measures. As the national average of US gasoline prices continues to hover around the 3.9/USG mark, President Biden announced that prices remain too high and that next week the White House would announce new measures to lower fuel prices.
Putin Wants Large Gas Hub in Turkey. Blaming the US for the “sabotage” of the Nord Stream 1 and 2 pipelines, Russian President Vladimir Putin suggested that Russia redirect its Baltic flows to the Black Sea and create a new European gas hub in Turkey.
US Nuclear Powerhouse Finds New Owner. Canada’s uranium miner Cameco (NYSE:CCJ) and Brookfield Renewable Partners agreed to acquire nuclear plant equipment maker Westinghouse Electric in a $7.9-billion deal including debt as the future of nuclear in the Americas has markedly improved.
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ExxonMobil Teams Up on Carbon Storage. US oil major ExxonMobil (NYSE:XOM) has struck its first commercial carbon storage deal with the world’s top manufacturer of ammonia CF Industries (NYSE:CF), aiming to store underground 2 million tons of CO2 per year starting from 2025.
Oil M&A Activity Peaks in the US. Mergers and acquisitions in the US oil sector have soared to 16 billion in Q3 2023, the highest quarterly level this year, though the short-term outlook for M&A is relatively weak as oil firms prefer to pay down debt and buy back shares instead of investing.
Term Buyers Feel the Pain of Spiking Coal Prices. According to market reports, global trading major Glencore (LON:GLEN) signed a term coal supply contract with Japanese power utility Tohoku Electric for Oct 2022-Sept 2023 at an all-time high price of $395 per metric ton on a FOB basis, tripling year-on-year.
Russian Copper Piles Up in LME Warehouses. Significant volumes of Russian-origin copper are reportedly piling up in London Metal Exchange-approved warehouses in Germany, the Netherlands, and Taiwan as the exchange is mulling a ban on Russian aluminum, nickel, and copper.
India Launches Another Oil Auction. One of the most import-dependent major oil buyers globally, India has launched a new licensing round, offering 26 oil and gas blocks (mostly deep-water with only 3 onshore lots) and 16 coalbed methane blocks, seeking to attract Western majors with drilling know-how.
By Michael Kern for Oilprice.com
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The reason is that the fundamental of the global oil market are sound and they are underpinned by a tight market and a shrinking global spare oil production capacity including OPEC+'s.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert