Oil prices have been buoyed by the Hamas attack on Israel, with a heightened geopolitical risk premium in markets and growing concerns that the U.S. will double efforts to stem Iranian oil flows. Despite the price rise, uncertainty remains in oil markets as to exactly how supply and demand will be influenced.
Chart of the Week
- The double whammy of peak driving season being over and high crude prices have brought US gasoline demand much lower than it seasonally should be, shedding some 1 million b/d in demand since the July peak.
- Supplies of finished gasoline in the US market fell to 8 million b/d in the latest weekly EIA numbers, which combined with soaring gasoline stocks (up 6.5 million barrels last week, the highest week-on-week jump in 20 months) adds to the pressure on light distillates.
- NYMEX RBOB gasoline futures have lost more than 15% in the past month alone, currently trading at $2.24 per US gallon, well below last year’s October readings.
- Peaking at $30-35 per barrel in the summer, gasoline cracks are down to $5-6 per barrel across all continents - in Europe they’re the lowest as gasoline inventories in the ARA region (Amsterdam-Rotterdam-Antwerp) surged to the highest level since 2008.
Market Movers
- Germany’s embattled utility giant Uniper (ETR:UN01) is preparing to sell its German district heating business, having hired Rothschild to run the transaction and eyeing $400-500 million from the deal.
- Canada’s oil major Suncor Energy (NYSE:SU) agreed to buy the 31% stake of TotalEnergies (NYSE:TTE) in the Fort Hills oil sands mine for $1.07 billion, adding 61,000 b/d of bitumen production capacity.
- The 290,000 b/d Corpus Christi refinery operated by US refiner Valero (NYSE:VLO) was partially shut down after a fire, the second at the plant in 2023 already, stretching diesel supply even further.
Tuesday, October 10, 2023
The rapid escalation of the military conflict between Israel and Palestine’s Hamas allowed oil prices to regain some of the lost ground from last week, with ICE Brent adding almost $4 per barrel Monday and closing at $88 per barrel. The focus is on Iran now, with ramifications of the Gaza standoff potentially impacting the country’s oil exports if the US political establishment enforces stricter enforcement of sanctions.
OPEC Raises Oil Demand Outlook. In its recently published 2023 World Oil Outlook, OPEC defied IEA calls to abandon fossil fuels and raised its world demand forecast, expecting peak demand by 2045 at 116 million b/d, which is a whopping 6 million b/d increase compared to last year’s report.
Exxon-Pioneer Deal Hard to Derail. The White House would struggle to thwart ExxonMobil’s (NYSE:XOM) mulled $60 billion takeover of Pioneer (NYSE:PXD) despite its previous adverse disposition towards the US major, as it’s usually refinery or retail deals that trigger antitrust risks.
Russia Lifts Ban on Diesel Exports. Following Friday’s announcement that Russia would lift the ban on most diesel exports, the world’s top seaborne exporter of the fuel has resumed full-blown port operations, though the prohibition of gasoline exports remains in place.
EU Set to Launch Chinese Steel Anti-Subsidy Probe. According to the Financial Times, the European Union is planning to announce an anti-subsidy investigation against Chinese steelmakers, aligning with the US so as to avoid the re-imposition of Trump-era tariffs on EU steel.
Uganda’s Drilling Bonanza Halted. Ugandan authorities have suspended works at the Kingfisher oil field operated by China’s state-owned firm CNOOC (HKG:0883) after a fatal incident during drilling operations, with a resumption only expected after security checks are fully over.
China Issues Fourth Round of Import Quotas. The Chinese Ministry of Commerce issued a new batch of crude import quotas totaling 9.54 million tonnes (70 million barrels), mostly to independent refiners that didn’t receive their full allocation for 2023, boosting the outlook for China’s oil imports.
US-Venezuela Sanctions Relief Talks Ongoing. The United States and Venezuela have progressed in negotiations that would see at least one additional foreign company, believed to be the French upstream firm Maurel & Prom (EPA:MAU), would be allowed to resume operations alongside PDVSA.
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Israel Shuts Largest Field Amidst Hostilities. Israel has suspended operations at the Tamar offshore gas field operated by US major Chevron (NYSE:CVX) off the southern coast of the country, fearing a retaliatory strike by Hamas as the platform is within rocket fire range from the Gaza Strip.
Subsea Gas Pipeline Leak Puts Pressure on Gas. European gas prices moved above the €40 per MWh threshold after a subsea gas pipeline connecting Finland and Estonia experienced a sudden drop in pressure, with the operator saying it might take months or more to repair the leak.
Copper Outlook Worsens by the Day. The International Copper Study Group (ICSG) announced that the balanced 2023 copper market will transition to a major supply surplus next year, with the production surfeit hitting 467,000 metric tonnes, aggravated by a worsening demand outlook in China.
Iraq Launches Upstream Licensing Round. Iraq’s oil ministry called on international oil companies to submit letters of intent into the country’s 6th oil and gas licensing round, expected to award 14 oil and gas projects with a new profit-sharing agreement, eyeing increased gas output to meet demand.
Pemex Cuts Production Outlook, Again. Mexico’s national oil company Pemex cut its production forecast for 2024 to 1.89 million b/d, significantly lower than the initial 2.6 million b/d plan and even lower than the 1.95 million b/d announced a mere three months ago as legacy fields continue to decline.
US Gasoline Prices Decline Across the Board. With gasoline demand decreasing and oil prices dropping below 90 per barrel, US gasoline prices have declined in virtually all 50 states and edged lower to a national average price of 3.704 per gallon, down 3% week-on-week.
By Michael Kern for Oilprice.com
More Top Reads From Oilprice.com:
- OPEC Hikes Oil Demand Forecast To 116 Million Bpd In 2045
- Oil Prices Soar After Hamas Attacks Israel
- Chevron Shuts Down Israeli Natural Gas Field After Hamas Attack
The uncertainty in the market will be short-lived because I doubt that that the conflict between Hamas and Israel will widen to involve major powers in the Middle East. Moreover, Iran which supports Hamas isn’t going to get involved directly because this will invite a devastating response from both the United States and Israel. Nor would Hizbullah in Lebanon get involved in a war with Israel.
Therefore, the threats for the oil and energy markets are minimum though prices will get a war premium.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert
Long $slb Slumberger strong buy