Oil prices appear to have taken a break from focusing on macro events, with increasing demand and disruptions in supply pushing oil prices higher at the start of the week. The real news for oil markets this week, however, will come from the Fed's meeting.
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Chart of the Week
- As French strikes are moving into their third week and at least four refineries are winding down operations due to blocked ports and overflowing stocks, Europe’s diesel woes are making a counter-seasonal comeback.
- French refining, recording 990,000 b/d in the last reported month of January 2023, is heavily geared towards diesel, but cannot meet the country’s hefty 850,000 b/d demand for the product.
- Consequently, the spread between the prompt and second month of Europe’s diesel benchmark contract, the ICE low-sulfur diesel, rose to a premium of $35 per barrel, the highest since November 2022.
- France might be the epicenter of the diesel squeeze because the blockage of import terminals across the country is limiting diesel importers from buying products, with diesel imports falling 50% this month compared to February.
- US LNG developer Sempra Energy (NYSE:SRE) has reached a final investment decision for the 13.5 mtpa capacity Phase 1 of the Port Arthur LNG project in Texas, estimating costs at $13 billion.
- Italian oil major ENI (BIT:ENI) made a new 200 million-barrel discovery with its Yatzil exploration well in Mexico’s offshore Block 7, hitting 40m of net oil pay some 40 miles off the coast.
- Warren Buffett’s Berkshire Hathaway (NYSE:BRK) conglomerate sped up its pace of stock buybacks, having already repurchased more than $1.8 billion of its stock in 2023 to date, suggesting the company is still undervalued.
Tuesday, March 21, 2023
Having survived the macro mayhem of last week, oil prices have marginally rebounded this week, with ICE Brent climbing toward $75 per barrel again. The perennial bulls have started to discuss the commodity supercycle again, while the UN published yet another report of a “ticking climate bomb”. For a second it might even feel like a return to the idyllic past when only supply and demand mattered. However, that feeling will likely be a brief one as the Fed starts its two-day meeting on Tuesday, potentially creating another downside factor for prices.
US Oil Exports Hit Record Highs. US crude exports are set for an all-time high this month, with outflows to Europe averaging 2.1 million b/d so far as wide discounts for the WTI benchmark and a significantly lower domestic refining pull compel oil producers to export as much as they can.
G7 Holds Back on Price Cap Revision. The G7 group is reportedly not seeking to revise the $60 per barrel price cap on Russian oil this week, three months after it came into effect on December 05, claiming there is no appetite among the members to alter policy.
Gold Spikes to 1-Year High. Gold prices have spiked to their highest level since March 2022 this week on the back of banking collapses and a redirection of capital into safe-haven assets, hitting $2,009 per ounce in the Monday session, only to subside somewhat on
French Refinery Disruptions Get Worse. Four out of France’s six refineries, a total of 883,000 b/d of refining capacity, are poised to halt operations this week as nationwide protests against President Macron’s decision to increase the retirement age to 64 years spiral out of control.
Chevron Tanker Collides with Sanctioned Vessel. The Kerala oil tanker, chartered by US oil major Chevron (NYSE:CVX) to transport some of its heavy Venezuelan crude at the Bajo Grande terminal, collided with Bueno, a sanctioned vessel that had carried Iranian oil in the past, in Venezuelan waters.
UK Oil Workers to Start Striking. Some 1,400 offshore workers brought together by the Unite trade union intend to strike across UK oil production sites within weeks, demanding better pay and work conditions, impacting output from fields operated by BP (NYSE:BP), Shell (LON:SHEL), and others.
LME Suffers Another Scandal. Less than a year has passed since the LME’s nickel trading debacle, and the metal exchange has now found bags of stones instead of the nickel that was supposed to underpin some of its contracts at a warehouse in Rotterdam, dealing another blow to the 146-year-old exchange.
Indigenous Protests Hinder Ecuador Production. Protests by indigenous communities in Ecuador’s Oriente jungle have forced the country’s national oil firm Petroecuador to declare force majeure on production there, aggravated by a 6.8-magnitude earthquake that triggered power outages.
Mexico to Punish Its Own Refiner. The state authorities of the Nuevo Leon state in Mexico warned they would penalize national oil company Pemex for a dramatic increase in emissions coming out of its Cadereyta refinery, responsible for 90% of sulfur dioxide emissions in and around Monterrey.
BP Eyes Chinese CCUS Projects. UK energy major BP (NYSE:BP) signed an agreement with China’s state-owned oil company PetroChina (SHA:601857) to build a carbon capture, utilization and storage (CCUS) cluster in the country’s Hainan province, potentially storing some 1 million tons CO2.
Exxon Wants to Get More Out of Mozambique. Having shelved the Rovuma LNG project in Mozambique after an Islamic State insurgency, US oil major ExxonMobil (NYSE:XOM) is now looking to revive the project and increase its production capacity from the initial 15.2mtpa to 18mtpa.
Venezuelan Oil Minister Resigns. Venezuela’s oil minister Tareck El Aissami handed in his resignation this week after a corruption investigation into the operation of state oil company PDVSA by its new boss unearthed serious acts of corruption, linked to the disappearance of $3-5 billion in cryptocurrency.
EU Wants to Extend Gas Cut Mandates. The European Commission proposed an extension of gas consumption mandates for EU member states to have gas demand cut by 15% for another 12 months, wary that natural gas markets remain tight despite the exceptionally warm winter.
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If the current banking difficulties are sorted out without becoming a full-fledged financial crisis, oil prices will recover all their recent losses in no time.
If, on the other hand, more banks face difficulties, this will intensify fears of a financial crisis and this will impact adversely on prices causing them to fall further despite support from the world’s most bullish factor, China.
However, I am of the opinion that what started as a Silicon Valley Bank collapse will be contained and prevented from precipitating a global financial crisis because of firm action by the US Federal Reserve Bank and coordination with major Central banks around the world.
That is why I will continue to project that Brent crude could hit $90 in the first half of 2023 and touch $100 before the end of the year.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert