Oil markets torn between recession fears and physical tightness
Uncertainty is dominating the oil market this week, with recession fears being countered by physical tightness and growing supply risks.
Oil market watchers have become senior macroeconomists lately, with price swings increasingly dependent on larger market sentiment.
This week’s seesawing was in large part driven by the market expecting a 100 basis point hike, sending all global crude benchmarks crashing down to double digits, however as soon as the US Federal Reserve opted for a more modest 75 bps hike, ICE Brent bounced back to $102 per barrel.
Following the recent hedge fund sell-off, it seems that there is still no consensus on the main driving trend in the markets – fears of economic recession are just as strong as the feeling of immediate physical tightness.
Biden Visit Ends Without Production Boost Promise. With President Biden’s visit to Saudi Arabia in full swing, senior US officials have confirmed that Washington is not expecting Riyadh to boost crude production immediately, lifting crude prices by $2/barrel in Friday’s trading.
Asian LNG Prices Feel the European Heat. Spot Asian LNG prices have been trending above $40 per mmBtu lately, with increasing cooling demand and outages in several key suppliers (Peru, Australia) adding a layer of upward pricing pressure, whilst gas-strapped Europe continues to see prices well above those in Asia.
Algeria Becomes Largest Gas Supplier to Italy. In an ongoing diplomatic row with Morocco and Spain, Algeria has been rerouting its gas exports to Italy and is now set to supply the southern European country with 25 bcm of natural gas, with increased throughput rates starting next week already.
Iraqi Export Capacity Upgrades Get Delayed. Whilst Baghdad has been maintaining that it would expand crude export capacity by 150,000 b/d (to 3.4 million b/d in total) thanks to new infrastructure in Basrah, that goal is now postponed into Sept-Oct amidst pumping station upgrade setbacks.
China’s Power Supply Strained Under Record Heat. Peak power loads in several Chinese regions (Zhejiang, Jiangxi, Jiangsu etc.) have hit all-time highs this week, with temperatures above 40 degrees Celsius, leading to 5-6% year-on-year increases in average electricity consumption rates.
ConocoPhillips Doubles Down on Port Arthur LNG. US oil major ConocoPhillips (NYSE:COP) agreed to buy a 30% stake in Sempra Energy’s 13.5mtpa Port Arthur LNG project, agreeing to purchase 5 mtpa of LNG produced by the first phase of the project and supply the natural gas for its share of output.
Tripoli Government Pulls Off Hostile Takeover. The UN-backed Government of National Unity has sacked the longtime chairman of Libya’s NOC Mustafa Sanalla and replaced him with former central bank governor Farhat Bengdara, storming the oil company’s headquarters to install the new head.
China Might Scrap Australia Coal Ban. According to a Bloomberg report, Chinese officials are proposing to end a ban on Australian coal, introduced in October 2020, wary that Europe’s buying spree after the sanctions on Russian coal kick in will lead to increased competition for supplies.
Brussels Cozies Up to Azerbaijan. The European Commission has been working on a memorandum that would stipulate its goal of increasing Azerbaijani gas imports to at least 20 billion cubic meters by 2027, currently taking in 8 bcm via the Trans-Adriatic Pipeline (TAP) that ends in Italy.
Nationalization Boosted EDF Shares. Trading in shares of French energy firm EDF was suspended this week, up 13% week-on-week, as the French government prepares to nationalize the remaining 16% of shares it does not own still at a buyout price of close to €13 per shares, a 30% premium to current prices.
Indonesia Discovery Buoys Mubadala Upstream Plans. The UAE-based Mubadala Petroleum discovered a net 118-meter gas column with its Timpan-1 exploration well offshore North Sumatra, with the Indonesian find de-risking at least several TCf gas reserves in the basin.
Warren Buffett Still Likes Occidental Very Much. Warren Buffett’s Berkshire Hathaway has continued buying up shares of Occidental Petroleum (NYSE:OXY), adding another 4.3 million shares this week and taking total ownership of the oil firm to 19.2% (the equivalent of 179.4 million shares).
Japan Accelerates Nuclear Restart Amid Power Supply Qualms. The Japanese government is working towards the restart of four nuclear reactors before the onset of the 2022/2023 winter season, bringing the total number of operating units to nine, the highest number since the Fukushima incident.
China Moves to Limit Fertilizer Exports. China is rolling out a quota system to limit exports of phosphates, a key ingredient to producing fertilizers, that should see the light of the day at some point in H2, with early reports indicating the quotas will be set significantly lower than current export levels.
