Upward Pressure On Oil Prices Is Only Going To Increase

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Chart of the Week



- Merely a couple of days after OPEC+ sped up the pace of production increases, Saudi Aramco hiked its July formula prices for Asian buyers to higher-than-expected levels, stoking concerns that supply might be lower than expected. 

- The July ’22 OSP for Saudi Arabia’s largest crude stream Arab Light was hiked by $2.1 per barrel from June, almost a dollar above the month-on-month changes in the Dubai cash-to-futures spread.

- With Chinese buying widely expected to come back after recording some of the country’s worst post-pandemic figures in April-May, Aramco can afford to hike its prices, especially with Russia expected to drop production. 

- Also increasing prices into Europe, keeping only US pricing unchanged, Saudi Arabia might be indicating that it will not be able to produce as much crude as the OPEC+ deal stipulates, sending Brent prices above $120 per barrel again. 

Market Movers

- Australia’s largest upcoming gas project, the $3.6 billion Barossa operated by Santos (ASX:STO), might be jeopardized as groups of indigenous Australians have filed a lawsuit, saying the project threatens their way of life. 

- The US equity fund EIG is reportedly in discussions with Spanish oil major Repsol (BME:REP) to buy up to 25% of the firm’s upstream business in a deal worth $4-5 billion.

- Energy Transfer (NYSE:ET) signed a 25-year LNG supply deal with China Gas Holdings on a FOB basis for 0.7mtpa, coming from its upcoming Lake Charles LNG project and with first deliveries expected to start in 2026.  

Tuesday, June 07, 2022

Less than a week after OPEC+ decided to speed up its production curtailments and bring 648,000 b/d into the markets in July-August, ICE Brent is back above $120 per barrel. There are several reasons why the initial downward pressure on oil prices did not last. First of all, doubts started creeping in about whether OPEC+ can produce more - in this sense, the steep OSP hikes certainly didn't help. Second, everything is set for a particularly robust period of summer demand and global crude inventories are likely to continue declining. With expectations of weaker macroeconomics still yet to hit demand, the upcoming weeks will see considerable bullish pressure. 

Russia Confident It Can Bypass EU Insurance Ban. Russia claimed it is confident to get around the recently greenlighted EU ban on Russian crude insurance and financing that would kick in after a six-month wind-down period, primarily by using state guarantees to cover cargoes. 

White House Allows Venezuela Debt Shipments. In a symbolic move to ease Venezuela’s oil sanctions, the Biden Administration gave the nod to European oil firms Eni (NYSE:E) and Repsol (BME:REP) to begin shipping Venezuelan oil to Europe, resuming oil-for-debt swaps that were halted in 2020.

India Doubles Down on Russia Crude Supply. According to Bloomberg, India’s state-owned oil refiners are collectively working on finalizing and securing new six-month supply contracts with Russia’s main oil producer Rosneft, as Russian imports have already soared to 750,000 b/d in May. 

Lebanon Warns Israel Against Encroaching on Disputed Zone. Tensions have suddenly flared up in the Eastern Mediterranean after Beirut warned Israeli authorities against any activity in the disputed area that remains to be delineated between the two nations, reacting to the arrival of an FPSO vessel there. 

US NatGas Futures Jump on Rising Demand. US Henry Hub natural gas front-month futures rose to $9.37 per mmBtu yesterday as record power demand in Texas and higher cooling-driven generation overall combined with lower gas production maintained a steady upwards push on prices.

All the Big Players Are Leaving Alaska. Oil and gas companies are abandoning federal leases in the Arctic National Wildlife Refuge in Alaska, with both BP (NYSE:BP) and Hilcorp Energy dropping options last week amidst fierce conservationist pressures even though state authorities still hope for a drilling revival. 

Closely Coveted NWS Well Finds No Hydrocarbons. One of the most closely followed wildcats to be drilled in Australia this year, the Sasanof-1 exploration well off Western Australia’s North West Shelf turned out to be dry despite initial estimates putting it at 7.2 TCf of gas reserves, jeopardizing future LNG output in the country. 

Kurdistan Defies Iraqi Authorities and Courts. Authorities of Iraqi Kurdistan rejected the Iraqi Federal Supreme court’s decision that declared the KRG’s separate marketing of crude illegal, with another round of negotiations between Baghdad and Erbil expected this week.

Russia's Legal Fight Over an Alumina Refinery. Russia’s aluminum conglomerate Rusal has launched legal action against Rio Tinto (NYSE:RIO), seeking to restore its 20% in Australia’s Queensland Alumina refinery that the two held together in a JV before Rio cut Rusal’s access to production and took it over. 

BP-Shell Tandem The Only Bidder in Trinidad Licensing. The government of Trinidad and Tobago received bids for four of 17 deepwater blocks that it auctioned to halt a decline in gas production, with a consortium comprising BP (NYSE:BP) and Shell (LON:SHEL) making all the bids. 

Biden Administration Waives Solar Panel Tariffs. Despite earlier fears of China’s tariff circumvention, the White House waived tariffs on solar panels from Cambodia, Malaysia, Thailand, and Vietnam for two years amid a nationwide slowdown in US solar projects amid supply chain delays. 

Elliott Sues LME for Cancelled Nickel Trading. US hedge fund Elliott Associates is suing the London Metal Exchange for $456 million for canceling nickel trades in the trading mayhem seen this March, arguing that the exchange should not have erased deals after prices more than doubled above $100,000/mt in a matter of hours. 

US May Never Build Another Oil Refinery Again. Amidst never-seen refining margins boosting downstream profitability to unprecedented levels, Chevron (NYSE:CVX) CEO Mike Wirth stated that there may never be a new refinery built in the US, even though the last large-scale one was launched back in 1976.