Oil Markets Are Set Up For A Bull Run

After weeks of losses, oil markets appear primed for a rally as multiple bullish catalysts converge. The expected cut in OPEC+ production targets will then be followed by the end of the US SPR release before new sanctions on Russian oil and then fuel take effect.

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– As noted by Bloomberg, the key principle of European gas policy for the 2022/2023 winter season – reduced consumption – is not yet being implemented.

– In the last week of September, Europe experienced below-average temperatures for the first time and German consumers increased their gas consumption to 14% above the 5-year average.

– EU member states have agreed to cut gas demand by 15% this winter from August, meaning the fall in demand is significantly lagging behind despite high gas supplies.

– Europe’s benchmark TTF spot prices, which peaked in late August, have recently fallen to €170 per MWh, some 30% lower than the previous month but still three times higher than a year ago.

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– US oil major Chevron (NYSE:CVX) is said to have bought into the PEL 90 license off the coast of Namibia, adjacent to what is likely the biggest oil discovery of 2022, the multi-billion-barrel Venus.

– German power producer RWE (RWE) agreed to buy US energy company Con Edisons (NYSE:ED) Clean Energy Businesses for $6.8 billion, making it the fourth largest renewable energy player in the US market.

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– Brazil’s state oil company Petrobras (NYSE:PBR) is up 10% this Monday as a closer-than-expected presidential election will most likely force Lula to move closer to the center.

Tuesday 04 October 2022

After several weeks of macro-driven weakness, this week has finally brought something more tangible to the oil markets. Namely, a significant market intervention by OPEC+. Reports put the potential cut in OPEC+ production targets at around 1 million barrels per day. This potential reduction in OPEC+ production is combined with the onset of Russian sanctions and the ongoing US SPR release to provide real upward pressure on oil prices.

OPEC+ is serious about a huge cut. The OPEC+ meeting in Vienna, which is meeting in person for the first time since March 2020, this week is set to see its biggest coordinated downgrade in years as the oil major reportedly considers a 1 million barrels-per-day cut for November 2022 .

Israel-Lebanon Naval Agreement Might Really Happen After several years of shuttle diplomacy, US envoy Amos Hochstein has presented Israel and Lebanon with a draft agreement on how to partition a 330-square-mile disputed area in the eastern Mediterranean, and is moving closer to a resolution of the long-standing dispute.

The White House restarts the fuel price blame game. The Biden administration has fueled renewed emotion in the oil industry after Energy Secretary Jennifer Granholm blamed the majors for their failure to maintain adequate fuel inventories, increasing the likelihood of regulatory caps on fuel exports from the United States.

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IEA predicts huge drop in gas demand The International Energy Agency has forecast a 10% fall in European gas demand, the biggest year-on-year fall on record, followed by a further 4% drop in 2023, with most of the losses attributed to the continent’s struggling industry.

Nord Stream erupts largest methane release ever. The United Nations International Methane Emissions Observatory stated that the ruptures in Nord Stream Pipelines 1 and 2 are most likely the largest single release of methane in history, escaping at a rate of 22,920 kg per hour.

California is considering windfall profit tax. To respond to a sudden increase in gasoline prices, California Governor Gavin Newsom plans to become the first state in the country to introduce a windfall profits tax for oil companies in the form of a higher tax rate on profits for the year.

Prepare for a huge Chinese export spike. Beijing has finally issued a massive export quota of 15 million tons to refiners, the largest single allocation in 2022, paving the way for a surge in Chinese crude demand and refinery runs.

It’s getting hot again in Libya. The decision by the Libyan government in Tripoli to sign an interim energy exploration agreement with Turkey has drawn unprecedented outrage as governments in Greece and Egypt, as well as the simultaneous Libyan government in Benghazi, have protested drilling in contested waters.

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Prisoner swap eases tensions between US and Venezuela. A high-level exchange of prisoners, in which five Citgo employees were released in exchange for two Venezuelans (nephews of Venezuela’s First Lady Cilia Flores), was another step toward normalizing US-Venezuelan relations.

Iron ore remains surprisingly stable. While other commodities have been gripped by recession fears, iron ore has been surprisingly stable over the past two months, with 62% of iron ore trading slightly below $100/mt as the good and bad news out of China seems to offset each other.

Chinese delisting begins in London. Just a month after rumors of Chinese companies being pulled from Western stock exchanges surfaced, the Asian country’s biggest refiner is out CNPC (SHA:600028) announced that it would delist its American Depositary Shares (ADSs) from the London Stock Exchange.

Australian profits rise due to fossil boom. All the ramifications of the Russia-Ukraine war in 2022 has so far boosted Australia’s economic prospects as thermal coal revenues are set to rise 35% year-on-year (to A$62 billion), while the value of LNG exports is expected to increase by around increase 30%.

Saudi Arabia is talking about free capacities again. Reminding the Oil Industry of Supply Basics Saudi Aramco (TADAWUL:2222) CEO Amin Nasser argued that remaining spare production capacity has shrunk to just 1.5% of global demand.

By Tom Kool for Oilprice.com

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