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2022 was a year of substantial volatility for oil markets. For example, the Brent benchmark started the year at $83 per barrel and is poised to end the year in the low $80s, but for almost six months in between, it traded at prices in the triple digits.

Geopolitical events also forced producers and consumers to make significant changes to the flow of oil around the world. For example, Russian oil that traditionally flowed to Europe was rerouted to new markets in Asia. Europe had to find new oil supplies with longer transportation times and higher costs.

Here are six key oil market takeaways for traders from 2022:

1. Renewables Can’t Replace Fossil Fuels

Europe experienced a major electricity crunch after it decided to stop buying Russian natural gas and Russian crude oil. Though the crisis is ongoing, more people are coming to understand that solar and wind power cannot be stable sources of electricity.

The question for 2023 is whether the policymakers who have been pushing to increase renewable energy production will care and/or understand the fallacies of their energy transition plans and correct these errors to ensure that consumers have affordable and reliable sources of power and heat.

2. Saudi Arabia Won’t Come to the Rescue

Despite intense pressure from the United States, OPEC+ refused to increase oil production to bring down high oil prices. The lesson for traders is that Saudi Arabia can be expected to pursue its own best interests and not those of the United States when they conflict.

After many years of low oil prices, Saudi Arabia (and its OPEC+ allies) have benefited from keeping prices higher. They have attempted to do this by restricting production even if it is uncomfortable for U.S. policymakers and consumers.

3. OPEC Can’t Come to the Rescue

Years of low oil prices took their toll on OPEC+ producers, and many are experiencing substantial declines in capacity. Most OPEC+ producers cannot produce at the level their production quotas permit, so OPEC+ quotas don’t reflect the amount of OPEC+ oil actually on the market.

This means that except for Iraq, Saudi Arabia, and the UAE, OPEC+ producers are not able to increase production to push prices down. It also means that when OPEC+ cuts production quotas or increases them, only a fraction of that oil will either leave or enter the market.

4. The United States Isn’t a Swing Producer

U.S. oil producers are no longer able to pursue growth at any cost. Production takes longer to increase now than it did in 2016 and 2017. The U.S. oil industry was never a true swing producer in the global oil market because its oil industry isn’t monolithic and doesn’t act in unison, but in 2022 U.S. producers reacted sluggishly to high oil prices.

U.S. production did not reach 11.98 million bpd until August, despite several months of triple-digit prices in the spring and summer. Traders should expect slower production growth from the U.S. shale industry from now on.

5. China’s Oil Demand Is Crucial:

As economies around the world returned to pre-pandemic levels of oil demand, China stuck with zero-COVID policies that dampened its oil demand. This helped keep global demand from outpacing supply in 2022.

Even though China is relaxing these policies now, traders should not expect Chinese oil demand to suddenly return to pre-pandemic levels. China’s economy, and therefore its oil demand, is controlled by the CCP and will not necessarily follow the same patterns observed elsewhere where economic activity is not controlled centrally.

6. Developing Economies Want Russian Oil

Europe and the U.S. tried to limit Russian oil revenue with sanctions and an ill-conceived price cap scheme. These policies caused dislocation in global oil flows but did not block Russia from accessing new markets.

Russian oil that used to flow to Europe was rerouted to India—a totally new market for Russia. China increased its purchases of Russian oil. Europe is now buying more oil from the Middle East.

Even if Europe and Russia resolve their issues and resume their oil trade, Russian oil will likely continue to flow to India and other new markets. Traders should note that oil flows shifted more quickly than expected, and the period of disruption in the market was relatively brief.

Investing.com by Ellen R. Wald, January 31, 2023

Let’s first understand what liquefied natural gas (LNG) is.

LNG is the most secure and eco-friendly fossil fuel known today. Its sulfur, carbon, nitrogen, and other greenhouse gas emissions are significantly lower than coal, oil fuels, and other fossil fuels.

The importance of this green fossil fuel in the achievement of net-zero greenhouse gas emissions cannot be overemphasized, especially in the manufacturing and shipping industries. LNG is a product of natural gas and is applicable in power generation for both residential and commercial buildings, as a fuel in the transport sector, and as a cooking fuel in homes.

What is An LNG Import Terminal?

Natural gas exists naturally in natural gas reserves (on-shore or off-shore gas fields) around the world. It is produced in liquefaction plants.

As you’d expect, these liquefaction plants are in close proximity to the natural gas reserves. Upon liquefaction, LNG is shipped/exported via sea and received, stored, and re-gasified in LNG terminals. For local markets, LNG is transported to the terminals via LNG tankers. It’s from these terminals that the gas is then distributed to the end user via gas pipelines.

To meet the growing demand for liquefied natural gas, LNG investors have over the past decade pumped big bucks into the design, development, and construction of post-modern LNG terminal units.

As an example, take Joe Sigelman, AG&P CEO and chairman. Joe continues to fund the development and construction of natural gas processing plants across Asia. AG&P’s LNG terminals in the Philippines and India have dedicated import, storage, loading, and export facilities. Shrikant Madhav Vaidya, the Chairman of IndianOil Corporation, is another notable investor in the LNG sector.

Under his leadership, the company is building an LNG import terminal at Kamarajar Port that has a capacity of 20 million cubic meters per day. These huge investments underline the significance of LNG import terminals in the LNG value chain.

What Are the Key Roles of Import Terminals In LNG Distribution?

1) Berthing and unloading

LNG terminals are designed for the safe berthing and unloading of large LNG cargo ships. They have all the marine installations and loading articulated arms needed to accommodate & unload large ships of up to 350m in length.

2) LNG storage unit

The terminals either have an inbuilt regasification and storage plant or are in close proximity to one.

Upon unloading, LNG flows to the storage units through special LNG pipes that are designed to withstand temperatures as low as -160°C. The storage units are specially designed to compress and re-condense boil-off gas and send it back to LNG tankers as a way of regulating the pressure in the cargo tanks.

LNG storage tanks are flat-bottom tanks that are designed to hold LNG and maintain it in liquid form under normal atmospheric pressure (natural gas in liquid form is -160°C). The tanks are known as cryogenic tanks because of their ability to cope with the cryogenic temperature of LNG. Their outer walls are sufficiently insulated using pre-stressed reinforced concrete in order to prevent heat from penetrating into the tank and causing the liquefied gas to evaporate.

Sometimes the liquefied gas evaporates in small quantities, and that’s where the boil-off gas we mentioned earlier comes from. This is the gas that’s captured, compressed, condensed, and fed back into the LNG flow. On top of helping regulate pressure in the cargo tank, this recycling process also prevents the gas from overflowing into the atmosphere and causing the unwanted greenhouse effect.

3) Regasification

At any LNG import terminal, you’ll find equipment such as heat exchangers, underwater burners, submerged combustion vaporizers, turbines, and submerged cryogenic high-pressure pumps. These are the equipment that combines to convert liquid natural gas back to the gaseous state. The regasification process happens at a pressure of between 70-100 bars (around 80 times atmospheric pressure).

iv. Distribution

Upon vaporization at the import terminal, LNG is then treated with small amounts of Tetrahydrothiophene (THT) in order to give it an odor. Note that natural gas is odorless and that makes it undetectable and highly risky in case of leakage. THT gives it an artificial odor for easy detection. Treated LNG is then fed into a pipeline network and distributed to residential and industrial end users. Natural gas can also be compressed and distributed for use as a vehicle fuel.

Final word

If the kitchen is the heart of a home, an LNG import terminal is the heart of the entire LNG value chain. The export and import of LNG can’t happen without import terminals.

By Elliot Rodhes, January 31, 2023

Oil prices rose around 1% on Thursday after posting the biggest two-day loss for the start of a year in three decades with U.S. data showing lower fuel inventories providing support and economic concerns capping gains.

Big declines in the previous two days were driven by worries about a global recession, especially following weak short-term economic signs in the world’s two biggest oil consumers, the United States and China.

U.S. distillate inventories fell more than expected as a winter storm gripped the United States at the end of December, data from the U.S. Energy Information Administration showed on Thursday.

U.S. gasoline stocks (USOILG=ECI) fell 346,000 barrels last week, the Energy Information Administration said, compared with analysts’ expectations in a Reuters poll for a 486,000-barrel drop.​

Distillate stockpiles (USOILD=ECI), which include diesel and heating oil, fell 1.4 million barrels in the week, versus expectations for a 396,000-barrel drop, the EIA data showed.

“The impact of the storm during that time period is on full display here,” said John Kilduff, partner at Again Capital LLC in New York.

Brent crude futures settled higher at 85 cents, or 1.1%, at $78.69 a barrel. U.S. West Texas Intermediate crude settled up 83 cents, or 1.2%, at $73.67 a barrel.

Both benchmarks’ cumulative declines of more than 9% on Tuesday and Wednesday were the biggest two-day losses at the start of a year since 1991, according to Refinitiv Eikon data.

Supporting prices earlier in the session was a statement from top U.S. pipeline operator Colonial Pipeline, which said its Line 3 had been shut for unscheduled maintenance with a restart expected for the products line on Jan. 7.

Tamas Varga of oil broker PVM said the price rebound early in the session was due to the pipeline shutdown and added: “There is no doubt that the prevailing trend is down; it is a bear market.”

Reflecting near-term bearishness, the nearby contracts of the two benchmarks traded at a discount to the next month, a structure known as contango. ,

On Wednesday, figures showing U.S. manufacturing contracted further in December pressured prices, as did concerns about economic disruption as COVID-19 works its way through China, which has abruptly dropped strict curbs on travel and activity.

By The Financial Post, January 31, 2023

Russia remained China’s second-largest source of crude oil in 2022, following repeat top supplier Saudi Arabia, as Chinese refiners snapped up low-cost Russian barrels while Western countries shunned them after the Ukraine crisis.

China’s crude oil imports from Russia jumped 8% in 2022 from a year earlier to 86.25 million tonnes, equivalent to 1.72 million barrels per day (bpd), data from the General Administration of Customs showed on Friday.

Russian crude has been trading in widening discounts to global oil benchmarks following Western sanctions over its invasion of Ukraine, which the Kremlin has called a “special operation”.

China, which refused to condemn the attack, cranked up procurement of Russian barrels and has largely ignored the sanctions imposed by Western nations on seaborne Russian crude from Dec. 5.

In December, it brought in 6.47 million tonnes of crude oil from Russia, or 1.52 million bpd, compared to 1.7 million bpd in the same period in 2021.

China’s state-backed refiners have wound down the purchase of Russian oil since November, but the independent refineries have continued buying from intermediary traders who arrange shipping and insurance, shielding them from the risk of secondary sanctions.

Saudi Arabia shipped a total of 87.49 million tonnes of crude to China in 2022, equivalent to 1.75 million bpd, customs data showed, on par with the level in 2021.

China’s state-backed oil refiners largely fulfilled their term contracts with Saudi in 2022 despite the sluggish domestic demand.

Saudi Arabia is expected to remain a key, if not the dominant, crude exporter to China after President Xi Jinping’s visit to Riyadh in December, where he told Gulf leaders that China would work to buy oil in Chinese yuan, rather than U.S. dollars.

Customs data also showed that crude imports from Malaysia almost doubled in 2022 to 35.68 million tonnes. The Southeast Asian country is a transfer point for sanctioned shipments originating from Iran and Venezuela.

No Venezuelan crude imports were recorded by Chinese customs throughout 2022 and a total of 780,392 tonnes of crude oil from Iran arrived in China.

China is Iran’s biggest oil buyer, but most Iranian exports are rebranded as crude from other countries to evade U.S. sanctions.

Vortexa, a ship tracking specialist, assessed that China’s December imports of Iranian oil rose to a record of 1.2 million bpd, up 130% from a year earlier.

Crude shipments from the United States reached 7.89 million tonnes in 2022, down 31% year-on-year.

By Maritime Logistics Professional, January 31, 2023

U.S. oil refiners are expected to report higher fourth quarter earnings thanks to strong demand and healthy margins from processing crude oil into motor fuels, said analysts.

Profits last year from turning oil into gasoline, diesel and jet fuel hit multi-decades highs as plants ran full bore to meet rising travel and exports demand. Profits surged into the stratosphere for a sector that had been largely written off as the first victim of the energy transition.

Valero Energy, the second-largest U.S. refiner by capacity, kicks off earnings on Thursday with a projected per share profit of $7.19, according to Refinitiv, nearly three times the $2.47 of a year ago.

Top refiner Marathon Petroleum (MPC.N) is forecast to show a $5.70 per share profit, compared to $1.27 a year ago, while Phillips 66 could deliver a $4.46 per share, compared to $2.88 a year ago, according to Refinitiv.

Both are scheduled to report on Jan. 31.

“Refiners are tied as the best energy sub-sector in 2022,” alongside oilfield services, wrote Jason Gabelman, a research analyst at Cowen, in a recent note.

The U.S. crack spread , a measure of the profit from buying oil and selling gasoline and diesel, peaked last quarter at $45, more than double the peak in the same period last year.

The fourth quarter could far exceed pre-pandemic profits, said Tudor Pickering Holt analyst Matthew Blair. Industry profit for the quarter could average $3.95 a share, “only a hair below full-year” 2019 profit for the sector, he wrote in a note.

Results benefited from margins on diesel, a historically wide spread between light and heavy crudes, and refiners maximizing their processing last quarter, Blair said.

Margins on diesel and other distillates rose $8 per barrel, to about $58, triple the margins in the same period last year. A historically wide, about $18 per barrel, spread between light and heavy crude oil also aided refiners.

Many ran their plants at above 90% utilization rates, according to data from the U.S. Energy Information Administration and bought feedstock at lower costs, as U.S. crude futures dropped 5.7% over the prior quarter to $81.50 per barrel.

One reason diesel demand is strong: refiners are using diesel to reduce the amount of sulfur in fuel oil sold for ocean shipping.

The price difference between high- and low-sulfur fuel oil is very wide, indicating more diesel is being used to make low sulfur fuel oil, said Andrew Lipow, president of consultants Lipow Oil Associates.

The high margins may not last this year, however. Releases from the U.S. Strategic Petroleum Reserve have ended, reducing supplies of sour crude oil in the market.

Less Russian crude and OPEC exports could tighten heavy and light spreads, wiping away another refiner benefit.

Reuters by Laura Sanicola, January 31, 2023

Almost unnoticed, oil refining margins have once again exploded, and that’s a problem for consumers.

The price of crude matters for Saudi Arabia, Russia and other producers. It also matters for oil refiners. But what matters for consumers is the cost of refined products. And higher refining margins mean gasoline, diesel, jet fuel and other petroleum products are becoming dearer.

Oil refineries are complex machines, capable of processing multiple streams of crude into dozens of different petroleum products.

For simplicity’s sake, the industry measures refining margins using a rough calculation called the “3-2-1 crack spread”: for every three barrels of crude oil the refinery processes, it makes two barrels of gasoline and one barrel of distillates like diesel and jet fuel.

On Tuesday, the WTI 3-2-1 crack spread touched a three-month high of $42 a barrel.

If we aren’t hearing the alarm bells it’s because we’re deaf after refining margins reached eye-watering levels in 2022, when the 3-2-1 crack spread briefly surged above $60. But from a historical perspective, current margins are sky-high, as well.

Central banks need to keep an eye on them since they could be leading indicators of higher gasoline and diesel costs — and hence inflation. Take the cost of jet fuel in the wholesale market, for example.

In New York harbor, it changed hands Monday at the equivalent of about $185 a barrel.

From 1985 to 2021, the WTI 3-2-1 crack spread averaged about $10.50 a barrel. Even between 2004 and 2008, during the so-called golden age of refining, the crack spread never surpassed $30.

In more than three decades of data, the crack spread has only traded above its current level for 72 days — all of them in 2022, barring Monday and Tuesday this week.

Four factors explain why refining margins are rising.

Bloomberg by Javier Blas, January 31, 2023

For several weeks now, wintry temperatures have been causing levels in German gas storage facilities to drop. With currently 83.8 percent, however, they are well filled. On average, less was consumed than in previous years.

The winter weather made it difficult to save gas last week: Overall, gas consumption in the third calendar week was still 9.4 percent below the average consumption of the previous years from 2018 to 2021. In the week before, however, the decline was mainly due to significantly higher temperatures still at 34 percent.

Taken together, the temperature-adjusted consumption in weeks two and three of the current year was around 19.5 percent below the reference value for the years 2018 to 2021, as the Federal Network Agency announced in its daily gas management report.

Levels have been falling since the beginning of the year

“In the third calendar week we save (too) little gas due to the temperature,” wrote the President of the Authority, Klaus Müller, on Twitter. “Despite well-stocked gas storage facilities and important new LNG terminals, we need 20 percent savings for the winter of 23/24,” Müller continued.

The filling levels in Germany have been falling overall since January 9th. Before that, data had been stored for more than two weeks – which is not typical for the time of year. According to the German Weather Service, temperatures are expected to rise slightly from next week.

Today, gas storage levels fell by one percentage point for the second day in a row. This is the result of data from the European gas storage association GIE. On Wednesday morning, the fill level was 83.8 percent. For comparison: on January 24, a year ago, the fill level was 37.8 percent.

Gas storage as a buffer

The storage serves to compensate for fluctuations in gas consumption. They thus form a buffer system for the market. The filling levels usually decrease after the start of the heating period in autumn. On the morning of November 14, a fill level of 100 percent was recorded.

The EU Commission wants the member states to aim for a fill level of 55 percent across the EU on February 1, provided the winter months are not colder than average.

It should be noted that gas continues to flow permanently through pipeline imports to Germany, according to the Federal Network Agency on Tuesday from Norway, the Netherlands and Belgium. Germany now also receives natural gas via LNG terminals on German coasts.

Globe World News Record by David Sadler, January 31, 2023

The Caspian Pipeline Consortium (CPC), which handles the transportation and exports of most of the crude oil pumped in Kazakhstan, is ready to transport more crude to the export terminals on the Black Sea, CPC’s director general Nikolay Gorban said on Friday.

Last year, a total of 58.7 million tons of oil were transported through the Tengiz-Novorossiysk pipeline system, of which about 52.2 million tons were pumped in Kazakhstan, Gorban told Kazakhstan’s Energy Minister Bulat Aqchulaqov during a meeting today.

The 1,500-km CPC pipeline from the giant Kazakh oilfields in the Caspian Sea to Novorossiysk, on the Russian Black Sea coast, moves over two-thirds of all Kazakhstan export oil along with crude from Russian fields, including those in the Caspian region.

Kazakhstan’s oil production and exports were lower in most of the second half of 2022, due to a partial outage at the huge Kashagan oilfield due to a gas leak and urgent repairs needed at two of the CPC’s terminals on the Black Sea.

CPC was expected to complete the repairs at one of the mooring points at its Black Sea oil export terminal in November, in what would soon mark an increase in Kazakh oil shipments.

Oil exports from Kazakhstan via the Black Sea terminal faced at least a month of reduced shipments and disrupted loading schedules due to urgent repairs needed at two of the terminal’s three Single Point Moorings, the consortium said at the end of August.

In the third and fourth quarter of 2022, Kazakhstan’s massive oilfield Kashagan was down or pumping at reduced rates after a gas leak was detected on the site in August.

A few days later, the field operator said that the 400,000 barrels per day (bpd) oilfield would partially restart production, and upon completion of repairs and integrity verification, full production would be restored at the facility.

In 2023, Kazakhstan hopes to deliver up to 1.5 million tons of oil through the Baku-Tbilisi-Ceyhan pipeline, as part of growing efforts to find export routes bypassing Russia.

OilPrice.com by Tsvetana Paraskova, January 20, 2023