Category: Nieuws

Concerns about a recession in major oil-consuming markets have weighed on oil prices in recent weeks.

Last week, oil dipped to the lowest level in six months, a level last seen before the Russian invasion of Ukraine. This drop was due to concerns about economic growth in China, the world’s top crude oil importer, and in Europe and the U.S. amid high inflation and aggressive interest rate hikes.

The oil market has turned bearish this summer due to fears of slowing oil demand in a recession. Add to this the still resilient Russian supply – contrary to initial expectations of major losses – and the possibility of an Iranian nuclear deal that could return up to 1 million barrels per day (bpd) to the market, and some analysts are saying that the risks to oil prices are tilted to the downside.

“The balance of risk to the outlook now lies largely to the downside,” said Fitch Solutions Country Risk & Industry Research in a report seen by Rigzone.

Fitch Solutions kept its Brent Crude forecast at $105 per barrel this year and at an average of $100 per barrel next year.

Early last week, Fitch Solutions said that the outlook for the Eurozone economy remains “worrying” despite strong GDP data for the second quarter.

“We continue to forecast growth at just 1.0% next year, on the assumption that activity will lose considerable momentum over H222 and into H123, which will likely see the bloc as a whole flirt with recession (roughly a 50% probability),” Fitch Solutions said in an August 15 report.

Economies with large manufacturing sectors that rely more on natural gas as a source of energy consumption—namely Germany and Italy—are set to experience modest downturns this winter, Fitch Solutions noted.

Moreover, several banks, including Goldman Sachs, have downgraded their outlooks on China’s economic growth this year due to weaker than expected data for July and a tight energy supply.

Earlier this month, Goldman Sachs also revised its Brent price forecast for this quarter to $110 a barrel, down from a previous projection of $140 per barrel, but said it still believes the case for higher oil prices remains strong.

In recent weeks, oil prices have been driven down by low trading liquidity and “a mounting wall of worries,” Goldman said in a note carried by Bloomberg. Those worries include fears of recession, the SPR release in the U.S., the rebound in Russian crude oil production, and China’s snap COVID-related lockdowns, the bank’s strategists noted.

“We believe that the case for higher oil prices remains strong, even assuming all these negative shocks play out, with the market remaining in a larger deficit than we expected in recent months,” Goldman Sachs’s strategists said.

While oil prices are currently in the grips of recession fears, OPEC remains bullish on fundamentals, including demand, in the near term. The International Energy Agency (IEA) also sees robust demand this year due to increased gas-to-oil switching in power generation and industry because of soaring natural gas prices. In its latest report for August, the IEA raised its 2022 demand growth forecast by 380,000 bpd.

Global oil demand is still robust and will be such through the end of this year, OPEC Secretary General Haitham al-Ghais told Reuters last week, noting that the recent sell-off in oil doesn’t reflect fundamentals and is driven by fear.

“We still feel very bullish on demand and very optimistic on demand for the rest of this year,” al-Ghais told Reuters in an interview.

Going forward, recession fears will still top the factors shaping the trend of oil prices, but the EU embargo on Russian oil imports at the end of this year and the end of the U.S. SPR release in October could be the next bullish catalysts for oil.

By Yahoo!, August 29, 2022

Concerns are also mounting that Russia won’t bring its key Nord Stream pipeline back after a three-day maintenance starting on August 31.

European natural gas prices plunged the most since April after Germany said its gas stores are filling up faster than planned ahead of winter.

Benchmark Dutch front-month futures fell as much as 16% to 286 euros per megawatt-hour, reversing last week’s jump of almost 40%.

In Germany, gas storage facilities are filling up fast, according to Economy Minister Robert Habeck. The region’s biggest economy is set to meet an October target of 85% full already next month, he said in a statement on Sunday.

To be sure, the supply situation remains very fragile as Europe is grappling with its worst energy crisis in decades. Lower Russian flows, outages in Norway and increasing competition for LNG supplies are all bullish factors that won’t go away anytime soon.

Governments are also putting in place measures to ease the burden, setting aside some 280 billion euros, but that might not be enough. The Czech Republic, which holds the European Union’s rotating presidency, will call an extraordinary meeting of energy ministers to discuss bloc-wide solutions.

Concerns are also mounting that Russia won’t bring its key Nord Stream pipeline back after a three-day maintenance starting on August 31.

Dutch futures for next month fell 12% to 297 euros per megawatt-hour at 8:20 a.m. in Amsterdam.

Moneyweb by Vanessa Dezem, August 29

OPEC stands ready to cut output to correct a recent oil price decline driven by poor futures market liquidity and macro-economic fears, which has ignored extremely tight physical crude supply, OPEC’s leader Saudi Arabia said on Monday.

Saudi state news agency SPA cited Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman as telling Bloomberg OPEC+ has the means and flexibility to deal with challenges.

On concerns about a slowdown in the Chinese economy and a possible recession in the West, oil prices have fallen in recent weeks from as high as $120 per barrel to about $95 per barrel.

After Russia invaded Ukraine and the West retaliated by imposing harsh sanctions on Moscow, prices surged earlier this year to just below an all-time high of $147 per barrel, sparking concerns about the greatest energy supply crisis since the 1970s.

Prince Abdulaziz was quoted as saying the oil futures market has fallen into “a self-perpetuating vicious circle of very thin liquidity and extreme volatility”, making the cost of hedging and managing risks for market participants prohibitive.

He also was quoted as saying prices were falling based on “unsubstantiated” information about demand destruction and confusion around sanctions, embargoes and price caps, which have been proposed by the United States on Russian oil.

According to Prince Abdulaziz, a new agreement between OPEC+ partners beyond 2022 would be beneficial. However, risks of supply disruptions held true and a global spare capacity cushion was extremely low.

“Soon we will start working on a new agreement beyond 2022,” he said, without giving details.

Brent crude prices pared losses on the news and were trading down 1.4% at $95.40 by 1720 GMT, having earlier slipped to as low as $92.36.

The Organization of the Petroleum Exporting Countries and allies led by Russia, a group known as OPEC+, agreed to increase output by 648,000 bpd in each of July and August as they fully unwind nearly 10 million bpd of cuts implemented in May 2020 to counter the COVID-19 pandemic.

The group agreed earlier this month to raise production quotas by another 100,000 bpd in September as it faced pressure from major consumers including the United States which are keen to cool prices.

Only Saudi Arabia and the United Arab Emirates are believed to have spare capacity and the ability to increase production in a meaningful way.

But Prince Abdulaziz pointed to thin liquidity and extreme volatility taking focus away from the issue of spare capacity.

“Without sufficient liquidity, markets can’t reflect the realities of the physical fundamentals in a meaningful way and can give a false sense of security at times when spare capacity is severely limited and the risk of severe disruptions remains high,” he said.

By msn, August 29, 2022

Enbridge Inc. (Enbridge or the Company) announced it had completed a joint venture merger transaction with Phillips 66 (P66) resulting in a single joint venture holding both Enbridge’s and P66’s indirect ownership interests in Gray Oak Pipeline, LLC (Gray Oak) and DCP Midstream LP (DCP) and an agreement to realign their respective economic and governance interests in the underlying business operations.

Through the surviving joint venture as illustrated below, Enbridge will increase its indirect economic interest in Gray Oak to 58.5% from 22.8%. The parties have agreed to transfer to Enbridge, from P66, the operatorship of Gray Oak, the long-haul, contracted pipeline which provides critical, low-cost connectivity from the Permian into Corpus Christi and the Houston area.

The transfer of operatorship of Gray Oak is planned to occur in the second quarter of 2023. In turn, Enbridge will reduce its indirect economic interest in DCP to 13.2% from 28.3%, further reducing its commodity price exposure and strengthening the Company’s low-risk pipeline-utility model. 

The merger is expected to be immediately accretive to Enbridge’s distributable cash flow per share and result in an approximately US$400 million cash payment to the Company from the merged entity. The cash generated from the transaction will create additional financial flexibility and further the Company’s capital allocation priorities.

“We’re pleased to have reached this new arrangement with P66 to optimize the combined assets and drive operational and financial synergies from both assets,” said Al Monaco, President and Chief Executive Officer of Enbridge. “It’s another example of our continued focus on optimizing our portfolio and surfacing value for our shareholders, while further building out our already strong U.S. Gulf Coast export position. We look forward to continuing our strong partnership with P66.”

Gray Oak Pipeline, in combination with Enbridge’s Ingleside Energy Center (EIEC), provides an industry-leading solution to deliver low-cost, long-lived Permian Basin oil to local Gulf Coast and global export markets. The EIEC currently loads nearly 30% of North American oil exports. By 2030, the Company anticipates that the Permian oil supply will grow by an estimated two million barrels per day, enhancing Gray Oak’s utilization and driving increased oil exports off the Gulf Coast.

Further integration of Gray Oak and the EIEC is expected to support the development of new commercial solutions and future growth potential, unlocking additional value for Enbridge’s customers.

Enbridge intends to extend its solar self-power strategy by working with the other Gray Oak owners to develop solar facilities along the Gray Oak right-of-way in support of the Company’s net-zero emissions targets, and those of its customers.

Citi acted as financial advisor to Enbridge and Vinson & Elkins served as its legal counsel.

Our Great Minds, by Tina Olivero, August 29, 2022

The reopening of private refined products storage terminals in Mexico is sparking hope the government may be softening its stance towards private investments in that sector, but observers remain skeptical about the potential for substantial change.

In recent weeks, authorities have allowed some storage facilities, which had been shuttered, to resume operations.

Monterra Energy’s 2.2 million-barrel terminal in the port of Tuxpan, at which operations have been halted since late 2021, is now operating, according to a person close to the company. Monterra announced in February it had filed a $677 million lawsuit against the Mexican government for the closure of the terminal.

US-based Monterra declined comment on its Tuxpan terminal.

The government of President Andres Manuel Lopez Obrador has also recently allowed operations to resume at a terminal in the state of Sonora owned by Bulkmatic de Mexico, observers said. The Mexico-based subsidiary of the US company did not respond to requests for comment.

Similarly, the government has also renewed the import permit that had been cancelled for trader Trafigura, according to data from the Energy Secretariat, and according to a Reuters report, state oil company Pemex has started negotiations to resume business with Vitol.

The global trader’s US subsidiary in December 2020 agreed to pay $135 million in fines to the US as the resolution to charges it had bribed officials in Mexico, Brazil and Ecuador, according to the US Department of Justice.

Neither Pemex nor Vitol respond to requests for comment.

New map of demand

“It may not be much, but it’s a change in attitude,” said Alejandro Helu Jimenez, an independent consultant in Mexico City, referring to the reactivation of operations at the terminals.

Helu Jimenez, CEO of PetroIntelligence, a provider of retail prices of fuels in Mexico, thinks Pemex is allowing the participation of private companies in fuel storage to help it cope with the additional demand caused by the government’s subsidies to fuels.

The Lopez Obrador government in 2022 has doubled subsidies for gasoline and diesel to keep prices low as global values soar. The government has stopped collecting a special tax, called the “IEPS,” and most recently began subsidizing distributors through tax rebates.

The incentives have eliminated illegal imports, which were cheaper because they avoided taxation. Consumers who would typically purchase fuel from illegal importers switched back to Pemex to take advantage of the subsidies.

According to data from PetroIntelligence, the subsidies are roughly equal to 50% of their current prices.

The subsidies have revealed a new map of demand within Mexico, one that Pemex did not see before due to the illegal importers, Helu Jimenez said.

As a result, Pemex is re-designing its logistics and needs all the terminals in the country, including those owned by the private operators to meet demand, he said. The disputes over the United States-Mexico-Canada Agreement, could also be adding pressure, he said.

In July, the US and Canada initiated dispute settlement talks with Mexico under the USMCA trade agreement.

Diego Compean, an independent consultant in Mexico City, agreed with Helu Jimenez that demand increases and pressure from the US regarding the trade agreement might explain the change in the government’s attitude towards private investments.

However, he said the international pressure could be the most important factor behind the change. Compean also pointed out that although the government might be reacting to the pressure from the US, it is only restoring the way the market operated when Lopez Obrador arrived.

“It is not a full change of attitude; they are not giving any new permits,” he said.

Skepticism

Other observers told S&P Global Commodity Insights they were skeptical about the possibilities of a change in the government’s fuel terminals position and said the cases where the government has benefited private investments are few and isolated.

Most investors feel unsure about new spending and are tired of having to fight the government, observers said.

The handful of companies that have received a special treatment are mostly international firms protected by international treaties, said Carlos Vallejo Galvan, a consultant in Mexico City.

However, most local investors continue to suffer from paralysis in the sector, Vallejo Galvan said, referring to the Energy Regulatory Commission.

For the past two years,the commission has rejected permits consistently either for storage or for distribution of fuels, and in 2021 aggressively increased its supervision and verification efforts, which led to the closure of multiple storage terminals as well as transloading facilities.

The recent actions of the government could only be a sign of their reconfiguration of the market.

“A real change in attitude needs to come from the regulator,” Vallejo Galvan said.

State oil giant Saudi Aramco (2222.SE) on Sunday reported its highest quarterly profit since the company went public in 2019, boosted by higher oil prices and refining margins.

Aramco joins oil majors such as Exxon Mobil Corp (XOM.N) and BP (BP.L) that have reported strong or record breaking results in recent weeks after Western sanctions against major exporter Russia squeezed an already under-supplied global market causing a surge in crude and natural gas prices.

The company expects “oil demand to continue to grow for the rest of the decade despite downward economic pressures on short-term global forecasts,” CEO Amin Nasser said in Aramco’s earnings report.

Net profit increased 90% to 181.64 billion riyals ($48.39 billion) for the quarter to June 30 from 95.47 billion riyals a year earlier and compared with a mean estimate from 15 analysts of $46.2 billion.

It declared a second-quarter dividend of $18.8 billion, in line with its own target, to be paid in the third quarter.

Aramco shares, which were little changed on Sunday, have risen more than 25% this year.

Nasser, speaking to reporters on an earnings call, voiced concern over a lack of global investment in hydrocarbons that has led to “very limited” spare capacity. He said Aramco stands ready to raise oil output to its maximum sustained capacity of 12 million barrels per day should the Saudi government ask.

Aramco said its average total hydrocarbon production was 13.6 million barrels of oil equivalent per day in the second quarter. The company is working to increase production from multiple energy sources, including renewables and blue hydrogen as well as oil and gas, as it works on both energy security and climate goals, Nasser said.

Capital expenditure increased by 25% to $9.4 billion in the quarter compared to the same period in 2021. Aramco said it continued to invest in growth, expanding its chemicals business and developing prospects in low-carbon businesses.

It is also currently studying opportunities in the liquid-to-chemicals sector with a focus on the Asian market.

In July, Exxon posted its biggest quarterly profit ever, a net income of $17.9 billion, an almost four-fold increase from a year earlier, while European majors Shell (SHEL.L) and TotalEnergies (TTEF.PA) also benefited from surging margins for making fuels like gasoline and diesel.

The Saudi stock market, up 11% this year, is very promising for company listings in the near future, Nasser said, adding that there is “some expectation” that Aramco might list some entities within the firm.

Aramco is working to merge two energy trading units, with Aramco Trading Co to absorb Motiva Trading, ahead of a potential initial public offering of the business, sources have said.

Reuters by Hadeel Al Sayegh, August 23, 2022

U.S. oil refiners and pipeline operators expect energy consumption to be strong for the second half of 2022, even though analysts and industry watchers have worried that demand could falter if the global economy enters a recession or high fuel prices deter travelers.

The company outlooks suggest a stronger view than recent data showing weakness in U.S. fuel demand, particularly in gasoline, where consumption recently hit its lowest level since February even though this is the middle of the peak summer driving season.

U.S. gasoline product supplied over the past four weeks recently fell below 2020’s level for the same time of year, when the United States was in the depths of the pandemic.

Energy companies including Energy Transfer LP and PBF Energy Inc say energy demand will be strong in the second half of 2022, according to a Reuters review of company earnings calls.

“Management sees what’s going on on the ground so any time they’re calling out positivity when demand data has been showing otherwise, we find that interesting,” said Kian Hidari, an analyst at Tudor, Pickering, Holt and Co. “It’s still a strong environment for gasoline compared to historical levels.”

U.S. refiners are also benefiting from high exports of transportation fuels to Latin America, and plants are expected to run at high utilization rates to restock inventories that were drawn down when fuel supply cratered earlier this year.

Refiner exports of finished petroleum products were largely in line with five-year seasonal averages at 3.02 million barrels per day (bpd) in May, the latest data available, according to the U.S. Energy Information Administration. That was nearly 65% higher than the pandemic low reached in May 2020.

U.S. oil output has recovered to 12.1 million bpd, helping boost pipeline and terminal volumes for many midstream companies for the second quarter from a year ago. Energy Transfer reported a stronger-than-expected second quarter performance and boosted its guidance for the rest of the year, said Co-Chief Executive Thomas Long.

Of the 16 midstream companies that reported earnings last week, more than half revised guidance higher, said James Mick, Portfolio Manager at Tortoise Capital Advisors.

The four-week average of implied demand for gasoline fell to just under 8.6 million barrels per day (bpd) in the week to July 29, lowest since February, according to EIA data, though the weekly figures can be volatile.

“We are constructive on the outlook for transportation fuels, supported by low product inventories and healthy global demand,” HF Sinclair Corp Chief Executive Michael Jennings said on a call with analysts on Monday.

Inflation is soaring this year, but with U.S. job growth unexpectedly accelerating in July, economists are less worried about an impending recession.

The only U.S. refiner to note some demand tapering in its earnings call was CVR Energy Inc, specifically in the mid-continent, which includes states such as Kansas and Oklahoma, Hidari said. The company said it has seen some demand destruction as consumers shy away from driving because of retail gasoline prices that have reached over $4 per gallon.

IBT by Stephanie Kelly, August 23, 2022

As Sri Lanka remains mired in Chinese debt, China’s largest petrochemical giant, Sinopec, is expected to begin retail operations in the Lankan gasoline market, according to local media quoting sources.

According to reports, Sinopec is set to join the Sri Lankan market for the purpose of importing, distributing, and selling petroleum products, according to the Daily Mirror. This comes after Sri Lankan Cabinet Ministers accepted a plan in June to enable additional corporations from oil-producing countries to import oil and begin retail operations in Sri Lanka.

Kanchana Wijesekera, Minister of Power and Energy, presented the suggestion.

It is important to remember that the biggest economic crisis in Sri Lanka’s history has resulted in a severe scarcity of vital products such as fuel. Long lines at petrol stations are the new normal in Sri Lanka, and prices vary according to supply.

The country’s economy is bracing for a rapid contraction due to a scarcity of basic supplies for manufacturing, an 80 percent devaluation of the currency since March 2022, a lack of foreign reserves, and the failure of the country to pay its international debt commitments.

A serious foreign exchange shortage motivated the recent decision to allow the Chinese to enter Sri Lanka’s petroleum retail business. At the moment, the state-owned Ceylon Petroleum Corporation supplies 90 percent of Sri Lanka’s fuel, while Lanka Indian Oil Corporation supplies the remaining 10 percent (IOC).

Sinopec already has a presence in Hambantota, where it runs an oil storage.

Sri Lanka has been experiencing an expanding economic crisis since the beginning of 2022, and the government has defaulted on its international loans. According to the UN, 5.7 million people “require immediate humanitarian assistance.”

According to a media source, although Sri Lanka is experiencing its greatest economic crisis since independence, with food and fuel shortages, China has turned a blind eye to the problem and transferred blame to the borrower.

Despite the epidemic, the government was attempting to recover its economy, but the tourist industry was severely harmed, according to an article in the Global Strat View think-tank. Tourism accounts for 10 to 15% of the Sri Lankan GDP.

The COVID-19 problem, the loss of visitors, excessive government spending and tax cuts depleting state income, and the use of money for ventures with low returns have all led to Sri Lanka’s economic disaster.

Sri Lanka sought assistance from China, requesting a USD 1 billion loan to cover repayments and a USD 1.5 billion credit line to purchase Chinese goods; but, despite months of discussions, no progress was made.

newsx by Vaishali Sharma, August 23, 2022

Any revival of the 2015 nuclear deal will help add more crude oil to the global market

Crude oil futures traded lower on Monday morning with the US discussing the revival of the 2015 Iran nuclear deal with some European nations.

At 10.01 am on Monday, October Brent oil futures were at $95.52, down by 1.24 per cent; and September crude oil futures on WTI were at $89.30, down by 1.26 per cent.

September crude oil futures were trading at ₹7150 on Multi Commodity Exchange (MCX) in the initial hour of Monday morning against the previous close of ₹7231, down by 1.12 per cent; and October futures were trading at ₹7133 as against the previous close of ₹7195, down by 0.86 per cent.

According to media reports, the US President Joe Biden on Sunday spoke with the leaders from countries such as France, Germany and the UK. He discussed the ongoing negotiations toward a nuclear agreement. This included the ‘need to strengthen support for partners in the Middle East region’.

Any revival of the 2015 nuclear deal will help add more crude oil to the global market, as it will lead to the lifting of sanctions on Iranian oil by western nations. Last week, Iran had responded to a proposal by European Union (EU) to revive the deal. Iran had urged the US to show a ‘realistic approach and flexibility’ to resolve remaining issues in the deal.

In addition to this, power crisis in China (a major consumer of crude oil in the global market) also affected crude oil prices. Last week, Sichuan province in China started limiting power supply to consumers due to a severe power shortage. The power scarcity was driven mainly by extreme heat waves and drought.

September natural gas futures were trading at ₹732.70 on MCX in the initial hour of Monday morning against the previous close of ₹741.70, down by 1.21 per cent.

NCDEX

On the National Commodities and Derivatives Exchange (NCDEX), September castor futures were trading at ₹7566 in the initial hour of Monday morning against the previous close of ₹7534, up by 0.42 per cent.

September steel long contracts were trading at ₹51710 on NCDEX in the initial hour of Monday morning against the previous close of ₹52810, down by 2.08 per cent.

Business Line by BL Mangaluru Bureau, August 23, 2022

Russian production, the Fed’s decision to raise interest rates, and the weakened dollar. What other factors are driving crude oil prices these days?

Macroeconomics

On the macroeconomic side, the greenback diminished its gains on Wednesday following the U.S. Central Bank’s July minutes. Indeed, during its monthly meeting, the Fed appeared to be more hawkish than expected.

This raised concerns from some officials in the U.S. Central Bank, who were debating whether the Fed could raise rates too far to regain control of inflation on the one hand, and the need for further hikes on the other.

As I mentioned in my last article published last Thursday, when all data turns into bearish territory for both legs – the greenback and black gold – it is usually the optimism (or pessimism, depending on which point of view we take) triggered by the macroeconomic perspective that leads the markets.

In that case, as the news has rather been bullish for the US dollar, it is the one which will set the tempo for the positively or negatively correlated assets.
Fundamental analysis

On Wednesday, the Energy Information Administration (EIA) released the weekly change in Crude Oil Inventories.
U.S. crude oil inventories

The commercial crude oil reserves in the United States surprised the market by sharply dropping to -7.056M barrels while expectations were just showing a tiny drop (-0.275M barrels).

US crude inventories have thus decreased by over seven million barrels in volume, which is a very significant deviation displaying greater demand and is a strong bullish factor for crude oil prices, since the drop can be explained, in part, by the increase in U.S. crude exports, which more than doubled last week to 5 million barrels per day (Mbpd) against 2.1 Mbpd.

The decline in commercial reserves is due to strong domestic demand and rising exports as US trading partners seek to compensate for the loss of Russian hydrocarbons.
U.S. Gasoline inventories

Like the previous week, U.S. gasoline demand figures have significantly dropped as well:

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This is once again where we could see a sustainable rise in demand marked by an unexpectedly sudden drop in gasoline reserves, since the latter were reduced by four and a half million barrels. Another factor to note is that a few refineries also operated at a lower rate of capacity, at 93.5% versus 94.3%.
Geopolitics

On the geopolitical scene, the ongoing negotiations around the Iranian nuclear agreement, which could allow this major producer to resume its exports, still hover over prices as a bearish factor.

However, even a return to the market of Iranian crude oil production would not compensate for the loss of Russian supply. In short, there is little new information about this agreement.

Midweek, black gold gained 5% after rebounding from a 6-month low, as a sharper-than-expected drop in U.S. crude inventories outweighed fears over rising Russian output, export sales, and recession concerns.

By FXStreet, August 19, 2022