Macro Data Dominates Oil Markets

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chart of the week

Cargo is the new Achilles’ heel of the oil market

– The major shifts in oil trade flows appear to be triggering a new form of upheaval, with tanker freight rates skyrocketing due to low vessel availability amid ever longer delivery routes.

– Following recent increases in Aframax and Suezmax freight, charter demand has shifted to VLCCs, driving freight rates to their highest levels since May 2020, with daily earnings in excess of $45,000 in all trading regions.

– According to Platts, monthly VLCC shipments will increase 26% to 135 loads in Q3 as exporters from the US, Middle East and West Africa alike benefit from conducive arbitrage to target Asia.

– For a VLCC shipment from the US to China, flat rates have risen to $10.7-10.8 million, which translates to $5.1-$5.2 per barrel, but even at that level it is still more profitable than chartering a Suezmax.

market mover

– Germany is expected to announce the nationalization of the country’s ailing largest gas importer Uniper (ETR:UN01)tomorrow, in a deal that is expected to cost Berlin more than 30 billion euros.

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– US Energy Major Chevron (NYSE:CVX) The company is reportedly selling its interest in three idle Alaskan oil fields with bids due this month in a move that could raise about $500 million.

– Privately held US upstream Gulf of Mexico focused company QuarterNorth is considering a potential sale valued at more than $2 billion that pays off while prices are still high.

Tuesday, September 20, 2022

One would be tempted to think that news of ever-growing OPEC+ underproduction or further production outages in Nigeria and Kazakhstan would have a significant impact on oil prices, but over the past 4-5 trading sessions, ICE Brent has been immune to the wild volatility for the largest part of this year. This is because supply/demand is no longer dictating key price trends, but macro data, so all eyes are firmly on Wednesday’s upcoming Fed monetary policy meeting.

OPEC+ underproduction is still spectacular. The gap between OPEC+ production targets and actual production is widening, hitting 3.6 million barrels per day in August, a whopping 0.7 million barrels per day month-on-month, while Russia and Nigeria maintained compliance deteriorate.

Venezuela’s best performing refinery is still burning. Venezuela’s 190,000 b/d refinery in Puerto La Cruz is still burning after lightning struck a water treatment oxidation lagoon, just days after another blaze caused by a ruptured hose on a gasoline cargo.

Germany takes over Russian refineries. The German government placed all three refineries in those of Russia Rosneft (MCX:ROSN) has shares under the trusteeship of the Federal Network Agency, which could trigger further retaliatory measures from the Russian side.

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US coal producers hedge against fuel prices. As U.S. diesel inventories hit their lowest level in decades, open pit coal miners across the country have begun pegging sales agreements to diesel indices as distillate fuel prices continue to fluctuate around $5/USG, a 75% increase from a year ago.

Troubled LNG heaters from Nigeria stir European fears. With oil and gas production in Nigeria severely hit by theft and sabotage, long-term buyers of the country’s LNG production like Portugal are looking to the coming months with concern as Bonny LNG remains at 60% capacity utilization.

The supply problems in Kazakhstan never seem to end. Kazakhstan’s outsized Kashagan field, which has been producing at reduced rates since early August, will not return to full production capacity until October, according to the country’s energy minister, struggling to contain an earlier gas leak.

Adding salt to Germany’s nuclear damage. The Isar-2 plant, one of Germany’s two remaining nuclear reactors, will have to go offline for repairs in October after a leak was detected this week, with a view to being fully shut down by December 31, 2022.

US warns Africa of huge gas projects US climate chief John Kerry warned against investing in long-term gas projects in Africa, a continent where 43% of the population has no access to electricity, saying it will be difficult to recoup investments as renewable energy is paramount be given priority.

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Turkey and Russia settle nuclear differences. Presidents Tayyip Erdogan and Vladimir Putin had reached an agreement to settle a dispute over the Russian-built Akkuyu nuclear power plant in southern Turkey, with Turkish developer IC Ictas reclaiming the agreement to build the $20 billion project.

European power solidarity in danger. According to media reports, state-controlled French energy supplier EDF (EPA:EDF) had sent a written notice to Italy that it could potentially halt electricity exports to the country for up to two years due to its ongoing nuclear problems.

Chinese coal production hampered by rain. China’s daily coal production ended a hot streak of record-high production, slipping to a three-month low of 11.95 million tons per day amid torrential rains in Inner Mongolia and Shaanxi and ongoing lockdown measures.

The Netherlands decides to cap energy prices. The Dutch government will cap gas and electricity prices from January at January 2022 levels and will also require energy companies not to close customers for the coming six months, a move it is expected to cover by increasing wealth and corporate taxes .

Nigerian oil production forecast remains bleak. Just as Nigeria’s oil production fell to a decade-low of 1.18 million barrels a day last month amid sabotage and oil theft, production is expected to fall even further as the 225,000 barrel-a-day Bonga field closes for maintenance in October.

By Tom Kool for

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