Oil Supply Fears Mount As OPEC Underperforms

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Chart of the Week

– As national average gasoline prices have surpassed the $ 5 per US gallon mark for the first time in history, the market is set for further tightness after ten consecutive weeks of inventory declines.

– With US gasoline demand increasing to 9.2 million b / d recently, gasoline exports are still running strong at 1 million b / d as Mexico and other Latin American nations remain dependent on US supplies.

– With US refiners no longer able to purchase Russian VGO as it remains banned, many are forced to choose between gasoline and diesel, meaning that both segments cannot be catered for simultaneously.

– Both diesel and gasoline cracks have soared above $ 50 per barrel vs WTI, though gasoline should take over the former on the back of still-higher demand expected over the summer months.

Market Movers

– Not yet willing to leave Angola, French major Total (NYSE: TTE) has taken an $ 850 million final investment decision on Phase 3 of its deepwater Clov complex, in production since 2014.

– Having sold its oil business to Woodside, mining giant BHP (NYSE: BHP) has been reorienting its focus on the fertilizer industry as it fast-tracks the development of its first mine in central Canada.

– UK energy major Shell (LON: SHEL) has received two offers for its onshore oil and gas fields in Nigeria, worth some $ 5 billion, with local companies Heirs Oil and Gas and ND Western vying for the Niger Delta portfolio.

Tuesday, June 14, 2022

News of OPEC + members underperforming their production targets is far from surprising, yet this week’s oil trading has been palpably impacted by the prospect of undersupply. Whilst Chinese demand is suffering once again from COVID lockdowns, continued supply disruption in Libya and OPEC revising its growth outlook downwards have more than offset bearish sentiment. With several banks and rating agencies hiking their crude price outlook for 2022, the new norm for ICE Brent appears to be around the $ 125 per barrel mark.

Biden Lashes Out at Oil Companies. US President Biden singled out oil major ExxonMobil (NYSE: XOM)saying the administration will make sure everyone knows Exxon’s profits and that the company made more money than God, whilst allegedly withholding investment into new drilling.

Permian Oil Production Expected to Hit All-Time High. According to the EIA, crude output in the Permian Basin across Texas and New Mexico is expected to increase by another 84,000 b / d in July, taking aggregate production total to 5.32 million b / d.

OPEC Cuts Supply Outlook Further. In its latest Oil Monthly Report, OPEC has cut its non-OPEC liquids supply growth by 250,000 b / d compared to May, most probably reflecting slower US uptake, whilst keeping the annual demand figure of 100.3 million b / d untouched despite China’s travails.

Lebanon Shows Openness for Maritime Claim Compromise. With US energy envoy Amos Hochstein arriving in Lebanon, the territorial dispute between Beirut and Tel Aviv seems to be fizzling out as high-ranking Lebanese officials indicated their readiness to engage.

JP Morgan Wins Court Case Against Nigeria. US investment bank JP Morgan has won London High Court case against Nigeria. The country was suing JP Morgan for $ 1.7 billion, arguing the bank was grossly negligent in transferring the funds to a company linked to African country’s disgraced oil minister Dan Etete in 2011.

BP Sheds Oil Sands, Doubles Down on Canada’s Offshore. UK oil major BP (NYSE: BP) has sold its 50% stake in the Sunrise oil sands project in Alberta to Cenovus (NYSE: CVE)at the same time buying the Canadian firm’s 35% stake in the undeveloped Bay du Nord offshore project.

Suriname Drilling Registers Another Letdown. US oil producer Apache (APA) announced that its Rasper-1 wildcat well in Block 53 of offshore Suriname struck only water, providing another setback after the non-commercial nature of the Bonboni-1 exploration well late last year.

Proliferating Long-Term Charters Push Up LNG Shipping. Spot market rates for LNG tankers have risen to multi-year highs as long-term-chartered vessels limit the supply of available tankers, with a spot voyage in the Atlantic Basin estimated at $ 100,000 per day.

Iran and Venezuela Sign 20-Year Partnership Deal. Following Nicolas Maduro’s visit to Tehran, Iran and Venezuela signed a 20-year cooperation agreement that calls for closer alignment in oil and gas, with Iranian companies already repairing the 140,000 b / d El Palito refinery and building new oil tankers.

Texas Power Demand Hits Record Amid Heatwave. With much of Texas confronted with counter-seasonally strong heat, power demand in the US state rose to 75 GW on Sunday and increased even further the next day, setting a new record for energy demand in the Lone Star State.

Libya Still Cannot Recover from Disruptions. As the internecine conflict in Libya degenerates further, some 1.1 million b / d of Libyan production is currently halted after protesters took offline the 200,000 b / d Sarir field and shut down the Es Sider and Ras Lanuf ports, leaving only a trickle of erstwhile output.

Tanzania Clinches Framework Deal on LNG Terminal. The Tanzanian government signed a framework agreement with Equinor (NYSE: EQNR) spirit Shell (LON: SHEL) in a bid to kickstart the construction of a $ 30 billion LNG terminal, delayed for years amidst regulatory confusion.

Aluminum Prices Take a Beating from China Lockdowns. Aluminum prices fell to a six-month low of $ 2,630 / mt after news of further lockdowns in China, the largest consumer of the metal globally, added to an already depressed outlook, with inflation and higher interest rates also weighing in.

By Josh Owens for Oilprice.com

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