The weakening of the U.S. dollar helped oil prices this week, keeping WTI front-month prices at $86 per barrel despite the avalanche of bad macroeconomic news. With business activity contracting in the U.S., the UK and the euro zone (in the latter it was the worst industrial performance report in the entire post-pandemic period), the oil market bulls are still facing an uphill battle, indicating that the lack of supply in the short term will gain the upper hand over demand concerns in the longer term. So far it has been a draw.
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Chart of the Week
European Inflation Hits Double Digits
- Whilst the commodity markets have been buzzing about upcoming Federal Reserve rate hikes, the European Central Bank is widely expected to follow down the same route and bring the deposit rate to 1.5% this week.
- This would mark the second straight 75 basis points increase, with hikes of at least 100 basis points expected until the deposit rate reaches an assumed peak of 2.5% in March 2023.
- The ECB still expects Eurozone GDP growth to reach 3.1% this year, having raised its outlook from June 2022 by 0.3% despite inflation hitting 10% in September, meaning that layers of European bureaucracy still fail to grasp the severity of the crisis.
- Starting interest rate hikes much later than the Fed, the ECB is still undecided on quantitative tightening – offloading the $5 trillion bonds that it has accumulated over the post-pandemic period – meaning EU growth rates might be in slower growth in the long run.
Market Movers
- Q3 net income figures of leading oilfield services firms have exceeded market expectations, with market leader Schlumberger (NYSE:SLB) reporting its strongest quarterly profit since 2015.
- Brazil’s iron ore giant Vale (NYSE:VALE) is considering a near-term spin-off of its base metals business and an eventual IPO of the future unit covering mostly copper and nickel production.
- U.S. bank Goldman Sachs (NYSE:GS) launched a JV with Chinese logistics company Sunjade in a bid to boost investment in Chinese logistics and infrastructure real assets.
Tuesday, October 25, 2022
Saudi Arabia Warns Against Using Emergency Stocks. Saudi Arabia’s energy minister Prince Abdulaziz bin Salman has warned against using SPR inventories as a mechanism to manipulate markets, saying losing stocks may be “painful” in the months to come.
Free Cash Flow of U.S. Oil Surges. According to Deloitte, the free cash flow of U.S. oil producers is set to increase by 68% this year to $1.4 trillion amidst surging prices of oil and products – quite the contrast with crude production in the country, which is set to increase only by 4.5% year-on-year.
White House Won’t Appeal Oil Spill Tax Decision. After a Texas District Court found that the recently Senate-enacted federal 9¢/barrel oil spill cleanup tax ran afoul of the export clause in the US Constitution, the Biden administration announced it would not appeal the ruling despite its objections.
Investor Pessimism Gains the Upper Hand. Hedge funds and other managers have suddenly reversed course and sold the equivalent of 50 million barrels in main oil futures in the week to October 18, leaving diesel as the only contract set to spike amidst a worsening demand outlook.
Chinese Refining Rebounds At Last. In a sign that the easing of lockdowns does in fact make a difference, China’s crude refinery throughput recorded its first year-on-year increase in 2022 and hit a nine-month high in September, coming in at 13.82 million b/d, up 10% from August figures.
U.S. Producers Dismiss Biden’s SPR Pledge. Top officials from U.S. shale companies have questioned the Biden Administration’s vow to start refilling the Strategic Petroleum Reserve when oil prices hit $67-72 per barrel, saying we are unlikely to see oil prices going that low anytime soon. Related: Oil Tanker Market In Disarray As EU Ban On Russian Crude Nears
Nord Stream Blast Leaves Insurance Perplexed. With evidence piling up that the Nord Stream 1 leaks were caused by powerful blasts; underwriters of the $7.6 billion pipeline system are readying for a massive damage claim with all of Europe’s leading reinsurance companies reportedly having exposure.
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The Endgame of Israel-Lebanon Maritime Deal. Israel’s Supreme Court rejected petitions against the US-brokered maritime demarcation deal between Israel and Lebanon, paving the way for an official signing this Thursday in a bid to explore for oil and gas jointly.
Texas Natural Gas Prices Fall below Zero. While U.S. natural gas futures continue their upward movement, prices in the Waha part of the Permian Basin were trading below zero as soaring production has been placing an undue burden on pipeline takeaway capacity.
China Discovers Massive Shale Gas Field. China’s oil major Sinopec (SHA:600028) discovered a huge shale gas field in the Sichuan basin, with the Jinshi-103 appraisal well reportedly tapping into 13.7 TCf (387.8 BCm) of natural gas though its recovery prospects remain to be specified.
Russia Continues Hitting Ukraine Power. According to Ukraine’s Energy Ministry, Russian air attacks have hit at least half of the country’s thermal generation capacity since October 10, resulting in widespread blackouts and a cessation of electricity exports from Ukraine to its neighboring states.
Saudi-China Energy Partnership Moves Ahead. China’s largest supplier of seaborne oil, Saudi Arabia has agreed to strengthen energy ties with the Chinese government as both sides highlighted the importance of stable long-term supplies, with Riyadh rumored to be mulling yuan payments.
Russia’s Coal Exports to China Hampered. Russian railway-delivered coal exports to China have risen by a third in 2022 so far, totaling 27.6 million tons in January-August, however further increases have been capped by lacking rail infrastructure and increasing congestion along the way.
By Tom Kool for Oilprice.com
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