Tag Archives: Oil Prices

Business

White House plans on announcing additional oil reserve sales in wake of OPEC+ cut

Leave a comment



CNN
 — 

President Joe Biden on Wednesday will announce the sale of an additional 15 million barrels from the Strategic Petroleum Reserve in December, a senior administration official said, as his administration seeks to counter market pressures created by the OPEC+ decision to cut oil production targets just three weeks from the midterm elections.

The announcement of the sale is the latest step in the White House’s unprecedented plan to balance global markets and dampen soaring gas prices. It marks an extension of the six-month program that was designed to provide a bridge for domestic producers to ramp up their own production as the global market faced spasms in the wake of Russia’s invasion of Ukraine, even as the release is composed of barrels earmarked in his March announcement.

That action, which has rolled out in regular sales over the last several months, combined with global economic concerns to help drive gas prices down for nearly three months straight.

“The price of gas is still too high, and we need to keep working to bring it down,” Biden said at an event in Los Angeles last week, adding that he planned to announce additional actions in the coming days.

The planned action would fulfill the administration’s announcement in March to release a historic 180 million barrels from the SPR over a six-month period to counter soaring energy prices triggered by Russia’s invasion of Ukraine. The action, which has rolled out in regular sales over the last several months, combined with global economic concerns to help drive gas prices down for nearly three months straight.

Biden has also made clear to his advisers that if the conditions merit, he is prepared to authorize future releases to balance the market. The President, the official said, directed his energy and economic teams to be prepared to authorize “significant additional sales in coming months” if the global market conditions require it.

The President on Wednesday will also detail the administration’s plan to refill the emergency reserve, which is now at its lowest level in nearly 40 years, laying out an important marker for market participants, given the scale of the federal action over the course of the last six months.

Biden will announce that the administration intends to repurchase crude oil for the emergency reserve when prices are at or below between $67 and $72 per barrel.

“We think that’s an important signal for producers that the SPR will be part of helping to helping to moderate and stabilize price flows – not only when prices are going high but when prices are going low,” the official said.

As part of this, the administration will also be finalizing a rule to permit the US government to enter into fixed price contracts with suppliers through a competitive bid process, which will facilitate the future repurchasing of crude.

The plan also serves the purpose of countering any criticism about the unprecedented scale of Biden’s reserve releases, one that officials said underscores the administration’s intent to refill when market conditions make it most advantageous.

“This administration is very committed – and we’re going to reiterate this commitment – to replenishing the SPR,” the official said. “We view the SPR is an incredibly important national security asset and we want to make sure that it serves its purpose well into the future.”

The official noted that the reserve, which has roughly 400 million barrels, is still the largest in the world and that the US remains positioned to deal with any crisis or challenges that would require its use.

“It’s important to understand and underscore, 400 million barrels is a lot of barrels,” the official said.

US officials strategically slowed the size of sales as the six-month program neared its deadline in an effort to ease the market transition until the decision by OPEC+, which set off furious pushback from US officials and an intensive effort inside the administration to produce options to counter any resulting increase in gas prices.

That included additional releases from the reserve, and officials have closely eyed Biden’s ability to trigger new releases within the bounds of the initial program as Election Day looms.

This headline and story have been updated with additional developments Tuesday.

Read original article here

Business

Oil Prices Continue to Fall To Levels Not Seen In Weeks

Leave a comment

Crude oil prices continued their fall on Tuesday, with WTI now dipping to levels not seen since before the OPEC+ meeting.

The November contract for WTI crude fell to $83.22 per barrel on Tuesday afternoon—sliding 2.64% from Monday. The last time WTI was this low was days before OPEC+ met, when the group decided to cut 2 million barrels per day from its production targets starting in November.

The price dip is in part attributed to talks about releasing more barrels from the U.S. Strategic Petroleum Reserves. Initial reports suggested that the Biden Administration could release another 10 million barrels and 15 million barrels from the nation’s SPR. Later reports, however, clarified that the figure discussed was part of the 180 million barrels set to be released between March and October—previously disclosed by the Biden Administration. The oil could be sold this week, and would be the final tranche of the 180 million barrels.

But oil markets are still skittish that the United States could release even more oil from the SPR to counteract high gasoline prices ahead of midterm elections. The United States is congressionally mandated to sell another 26 million barrels of crude from the SPR in the fiscal year 2023, which began on October 1, sparking worry that the US could move to release this in short order, rather than spread out throughout the year.

The U.S. SPR has fallen to 405 million barrels so far this year, from 593 million barrels in inventory at the start of the year, according to official EIA data. It is the lowest amount of crude oil in the SPR inventory since June, 1984.

Aside from the SPR release, another factor weighing on oil prices is the persistent fear of recession, which could sap oil demand.

By Julianne Geiger for Oilprice.com

More Top Reads From Oilprice.com:



Read original article here

World

Biden has a big oil problem. Here’s what you need to know about the recent OPEC+ decision.

Leave a comment

A version of this story appeared in CNN’s What Matters newsletter. To get it in your inbox, sign up for free here.


Washington
CNN
 — 

With just weeks to go until the November midterms, four letters are haunting President Joe Biden and the Democrats: OPEC.

Last week, the Organization of Petroleum Exporting Countries (OPEC) and its allies, led by Saudi Arabia and Russia, said that it will slash oil production by 2 million barrels per day, the biggest cut since the start of the pandemic, in a move that threatens to push gasoline prices higher just weeks before US midterm elections.

The group announced the production cut following its first meeting in person since March 2020. The reduction is equivalent to about 2% of global oil demand.

The Biden administration criticized the decision in a statement, calling it “shortsighted” and saying that it’s harmful to some countries already struggling with elevated energy prices the most.

The production cuts will start in November. OPEC+, which combines OPEC countries and allies such as Russia, will meet again in December.

For one perspective on the OPEC+ decision and to better understand how it affects everyone, we turned to Hossein Askari, who teaches international business at The George Washington University.

Our conversation, conducted over the phone and lightly edited for flow and brevity, is below.

WHAT MATTERS: Can you walk us through this recent OPEC decision? What’s happening exactly?

ASKARI: So when the war in Ukraine started, sorry to tell your audience, but the United States was not very well prepared in what it was going to do. It sanctioned Russia for this and for that. And so the price of oil started going up. And at the same time, the United States actually put sanctions on Russian oil, not on gas, on oil. And so there was less Russian oil in the Western markets.

Russia actually started selling its oil more and more to China and to India and cutting its prices to those countries. So they would buy Russian oil, but there was a shortage of oil.

Another reason why the shortage had developed was America basically sanctions like a mad cowboy, if I may say that. It has sanctioned Venezuela for many years.

But Saudi Arabia, with the new effective ruler who’s known as MBS, he has cozied up to Putin. And so when President Biden went and saw him a few months back and kind of asked him to increase oil production – I’m sorry to say this, I have to throw in this bit of politics – I think America really shamed itself by doing that.

Of course, MBS did not respond positively. But now he, in fact, has gone over the top. He has agreed within OPEC – and of course he’s the main spokesman in OPEC with Russia – that they will cut back.

WHAT MATTERS: What does the OPEC decision mean for the average American?

ASKARI: From where we are now, crude oil prices by the end of the year, my guess, maximum, they’ll go up by $5 a barrel. Now, a lot of people think they’re gonna go up more than that. I don’t believe that, because I think the world economy is going to grow less and I think that we are going to see some Venezuelan oil come on the market, and I think we may see some deals made so some more Iranian oil may come on the market.

For gasoline, I think Americans can see maybe prices going up from where they are today, if nothing else happens, by about another 30 to 50 cents a gallon.

However, there is also another problem for Americans that is home heating oil, and that can also go up. So for the average American, they’re going to pay, no matter what, something more per gallon of gasoline at the pump. And I think there’s going to be more of an impact, actually, on the fuel oil that they heat their houses with. So it’s gonna put on the squeeze on the average American. There’s no two ways about it.

WHAT MATTERS: What should the US do now?

ASKARI: I think the United States should be much, much tougher with Saudi Arabia because we have bent over backward to accommodate them in every way. And we have looked the other way with what they’ve done. And now it’s the time to be tough. They’ve been tough with us. I think the President of the United States should be tough with Saudi Arabia.

WHAT MATTERS: What else can the US do in terms of helping with oil prices in the immediate term?

ASKARI: I think undoubtedly this administration has very bad rapport with US oil companies and energy companies. I think that there should be more behind-the scenes cooperation with the oil companies and the administration because you really need them now to cooperate.

I know a lot of people don’t believe in fracking, but maybe it’s time to do some more fracking. Maybe it’s time to increase output. They can increase output elsewhere too. I think that would be extremely, extremely helpful.

And I think the US oil companies – and I’m not a backer of oil companies, please don’t misunderstand – but I think they feel that the administration basically just wants to drive them out business.

WHAT MATTERS: Anything else you’d like to add?

ASKARI: Some people think that OPEC decisions are purely economic. Some people think purely political. It has always been both, especially for Saudi Arabia.

It is really Saudi Arabia and the United Arab Emirates driving OPEC’s decision. I think Americans should understand it’s not the other members, it’s not Nigeria or Iran. I feel Americans should understand who are our friends and who are not our friends.

Read original article here

Business

OPEC announces big cut in oil production despite US pressure

Leave a comment


London
CNN Business
 — 

OPEC+ said Wednesday that it will slash oil production by 2 million barrels per day, the biggest cut since the start of the pandemic, in a move that threatens to push gasoline prices higher just weeks before US midterm elections.

The group of major oil producers, which includes Saudi Arabia and Russia, announced the production cut following its first meeting in person since March 2020. The reduction is equivalent to about 2% of global oil demand.

The price of Brent crude oil rose 1.5% to more than $93 a barrel on the news, adding to gains this week ahead of the gathering of oil ministers. US oil was up 1.7% at $88.

The Biden administration criticized the OPEC+ decision in a statement on Wednesday, calling it “shortsighted” and saying that it will hurt low and middle-income countries already struggling with elevated energy prices the most.

The production cuts will start in November, and the Organization of Petroleum Exporting Countries (OPEC) and its allies will meet again in December.

In a statement, the group said the decision to cut production was made “in light of the uncertainty that surrounds the global economic and oil market outlooks.”

Global oil prices, which soared in the first half of the year, have since dropped sharply on fears that a global recession will depress demand. Brent crude is down 20% since the end of June. The global benchmark hit a peak of $139 a barrel in March after Russia’s invasion of Ukraine.

OPEC and its allies, which control more than 40% of global oil production, are hoping to preempt a drop in demand for their barrels from a sharp economic slowdown in China, the United States and Europe.

Western sanctions on Russian oil are also muddying the waters. Russia’s production has held up better than predicted, with supply being diverted to China and India. But the United States and Europe are now working on ways to implement a G7 agreement to cap the price of Russian crude exports to third countries.

The oil cartel came under intense pressure from the White House ahead of its meeting in Vienna as President Biden tried to secure lower energy prices for US consumers. Senior Biden administration officials were lobbying their counterparts in Kuwait, Saudi Arabia, and the United Arab Emirates (UAE) to vote against cutting oil production, according to officials.

The prospect of a production cut was framed as a “total disaster” in draft talking points circulated by the White House to the Treasury Department on Monday, which CNN obtained. “It’s important everyone is aware of just how high the stakes are,” one US official said.

With just a month to go before the critical midterm elections, US gasoline prices have begun to creep up again, posing a political risk the White House is desperately trying to avoid.

Rising oil prices could mean inflation remains higher for longer, and add to pressure on the Federal Reserve to hike interest rates even more aggressively.

But the impact of Wednesday’s cut, while a bullish signal for oil prices, may be limited as many smaller OPEC producers were struggling to meet previous production targets.

“An announced cut of any volume is unlikely to be fully implemented by all countries, as the group already lags 3 million barrels per day behind its stated production ceiling,” Rystad Energy analyst Jorge Leon said in a note.

Rystad Energy estimates that the global oil market will be oversupplied between now and the end of the year, dampening the effect of production cuts on prices.

— Alex Marquardt, Natasha Bertrand, Phil Mattingly, Mark Thompson and Betsy Klein contributed to this report.

Read original article here

Business

Exxon Expects To Post Strong Q3 Earnings

Leave a comment

Exxon expects to report strong financial results for the third quarter of the year after smashing previous profit records in the second quarter on the back of the oil and gas price rally.

Per a Reuters report citing a snapshot issued by the supermajor, Exxon could book a third-quarter net profit close to its second-quarter record of $17.9 billion.

Average oil prices in the third quarter were $98 per barrel of Brent, which was substantially lower than the $109-per-barrel average in the second quarter, but still high enough to boost profits.

Natural as prices on international markets in the period averaged $7.95 per million British thermal units, however, up from $7.17 million per mmBtu in the second quarter, Reuters also noted.

Exxon booked second-quarter earnings of $4.21 per share assuming dilution. This is nearly quadruple the $4.69 billion in earnings for the second quarter of last year, and more than triple the earnings from the first quarter of this year. Exxon’s earnings per share easily beat the analyst consensus of $3.84.

Higher oil and gas prices, the highest refining margins in years, increased production, and aggressive cost control all contributed to the record-breaking profits at Exxon, which beat its previous quarterly earnings record from 2012 and the quarterly profits from 2008 when Brent prices hit a record $147 per barrel.

Now, despite the almost 25-percent slide in oil prices during the third quarter of the year, price levels remained conducive to higher profits, especially coupled with the increase in gas prices on international markets demand continued to outstrip supply.

The outlook for the immediate term is bullish, too, as the market anticipates a deep production cut from OPEC+, which would push oil prices significantly higher, creating yet another potential windfall for the industry, in which Exxon is among the biggest players.

By Charles Kennedy for Oilprice.com

More Top Reads From Oilprice.com:



Read original article here

Business

White House launches last ditch effort to dissuade OPEC from cutting oil production to avoid a ‘total disaster’

Leave a comment


Washington
CNN
 — 

The Biden administration has launched a full-scale pressure campaign in a last-ditch effort to dissuade Middle Eastern allies from dramatically cutting oil production, according to multiple sources familiar with the matter.

The push comes ahead of Wednesday’s crucial meeting of OPEC+, the international cartel of oil producers that is widely expected to announce a significant cut to output in an effort to raise oil prices. That in turn would cause US gasoline prices to rise at a precarious time for the Biden administration, just five weeks before the midterm elections.

For the past several days, President Joe Biden’s senior-most energy, economic and foreign policy officials have been enlisted to lobby their foreign counterparts in Middle Eastern allied countries including Kuwait, Saudi Arabia, and the UAE to vote against cutting oil production.

Members of the Saudi-led oil cartel and its allies including Russia, known as OPEC+, are expected to announce production cuts potentially up to more than one million barrels per day. That would be the largest cut since the beginning of the pandemic and could lead to a dramatic spike in oil prices.

Some of the draft talking points circulated by the White House to the Treasury Department on Monday that were obtained by CNN framed the prospect of a production cut as a “total disaster” and warned that it could be taken as a “hostile act.”

“It’s important everyone is aware of just how high the stakes are,” said a US official of what was framed as a broad administration effort that is expected to continue in the lead up to the Wednesday OPEC+ meeting.

The White House is “having a spasm and panicking,” another US official said, describing this latest administration effort as “taking the gloves off.” According to a White House official, the talking points were being drafted and exchanged by staffers and not approved by White House leadership or used with foreign partners.

In a statement to CNN, National Security Council spokesperson Adrienne Watson said, “We’ve been clear that energy supply should meet demand to support economic growth and lower prices for consumers around the world and we will continue to talk with our partners about that.”

For Biden, a dramatic cut in oil production could not come at a worse time. The administration has for months engaged in an intensive domestic and foreign policy effort to mitigate soaring energy prices in the wake of Russia’s invasion of Ukraine. That work appeared to pay off, with US gasoline prices falling for almost 100 days in a row.

But with just a month to go before the critical midterm elections, US gasoline prices have begun to creep up again, posing a political risk the White House is desperately trying to avoid. As US officials have moved to gauge potential domestic options to head off gradual increases over the last several weeks, the news of major OPEC+ action presents a particularly acute challenge.

Watson, the NSC spokesperson declined to comment on the midterms, saying instead, “Thanks to the President’s efforts, energy prices have declined sharply from their highs and American consumers are paying far less at the pump.”

Amos Hochstein, Biden’s top energy envoy, has played a leading role in the lobbying effort, which has been far more extensive than previously reported amid extreme concern in the White House over the potential cut. Hochstein, along with top national security official Brett McGurk and the administration’s special envoy to Yemen Tim Lenderking, traveled to Jeddah late last month to discuss a range of energy and security issues as a follow up to Biden’s high-profile visit to Saudi Arabia in July.

Officials across the administration’s economic and foreign policy teams have also been involved with reaching out to OPEC governments as part of the latest effort to stave off a production cut.

The White House has asked Treasury Secretary Janet Yellen to make the case personally to some Gulf state finance ministers, including from Kuwait and the UAE, and try to convince them that a production cut would be extremely damaging to the global economy. The US has argued that in the long-run a cut in oil production would create more downward pressure on prices – the opposite of what a significant cut would be designed to accomplish. Their logic is that “cutting right now would increase risks of inflation,” lead to higher interest rates and ultimately a greater risk of recession.

“There is great political risk to your reputation and relations with the United States and the west if you move forward,” the White House draft talking points suggested Yellen communicate to her foreign counterparts.

A senior US official acknowledged that the administration has been lobbying the Saudi-led coalition for weeks to try to convince them not to cut oil production.

It comes less than three months after President Joe Biden traveled to Saudi Arabia and met with Crown Prince Mohammed bin Salman on a trip that was driven in part by a desire to convince Saudi Arabia, the de facto leader of OPEC, to increase oil production which would help bring down the then-skyrocketing gas prices.

When OPEC+ agreed a few weeks later to a modest 100,000 barrel increase in production, critics argued Biden had gotten little out of the trip.

The trip was billed as a meeting with regional leaders about issues critical to US national security, including Iran, Israel and Yemen. It was criticized for its lack of results and for rehabbing the image of the crown prince who had been directly blamed by Biden for orchestrating the killing of Washington Post columnist Jamal Khashoggi.

In the months leading up to the meeting, Biden’s top aides for the Middle East and energy, McGurk and Hochstein, shuttled between Washington and Saudi Arabia planning and coordinating the visit.

One diplomatic official in the region described the US campaign to block production cuts as less of a hard sell, and more of an effort to underscore a critical international moment given the economic fragility and ongoing war in Ukraine. Though another source familiar with the discussions told CNN it was described by a diplomat from one of the countries approached as “desperate.”

A source familiar with the outreach says a call was planned with the UAE but the effort was rebuffed by Kuwait. Kuwait’s embassy in Washington did not immediately respond to a request for comment. Neither did Saudi Arabia’s. The UAE embassy declined to comment.

Publicly, the White House has cautiously avoided weighing in on the possibility of a dramatic oil production cut.

“We are not members of OPEC+, and so I don’t want to get ahead of what could potentially come out of that meeting,” White House press secretary Karine Jean-Pierre told reporters Monday. The US focus, Jean-Pierre said, remains “taking every step to ensure markets are sufficiently supplied to meet demand for a growing global economy.”

OPEC+ members are weighing a more dramatic cut due to what has been a precipitous decline in prices, which have dropped sharply to below $90 per barrel in recent months.

Hanging over Wednesday’s OPEC+ meeting in Vienna will also be the looming oil price cap that European nations intend to impose on Russian oil exports as punishment for Russia’s invasion of Ukraine. Many OPEC+ members, not only Russia, have expressed unhappiness with the prospect of a price cap because of the precedent it could set for consumers, rather than the market, to dictate the price of oil.

Included in the White House talking points to Treasury was a US proposal that if OPEC+ decides against a cut this week the US will announce a buyback of up to 200 million barrels to refill its Strategic Petroleum Reserve (SPR), an emergency stockpile of petroleum that the US has been tapping into this year to help lower oil prices.

The administration has made it clear to OPEC+ for months, the senior US official said, that the US is willing to buy OPEC’s oil to replenish the SPR. The idea has been to convey to OPEC+ that the US “won’t leave them hanging dry” if they invest money in production, the official said, and therefore, that prices won’t collapse if global demand decreases.

Read original article here

Business

America’s gas prices rise for the first time in 99 days

Leave a comment


New York
CNN Business
 — 

The historic streak of falling gasoline prices is over.

After sinking every day for more than three months, US gas prices edged higher – by a penny – to $3.68 a gallon, on average Wednesday, according to AAA.

That ends 98 consecutive days of falling pump prices, the second-longest such streak on record going back to 2005.

The last time the national average price for gasoline rose was June 14, when it hit a record of $5.02. Prices fell every day since then and Thursday would have marked the 100th straight day of declines.

The plunge in gas prices was driven by a series of factors, including stronger supply and weaker demand as drivers balked at high prices and unprecedented releases of emergency oil by the White House.

Another major factor that had been driving gas prices lower: Growing concerns of a global recession that could hurt demand for gas. People who lose jobs don’t have to drive to work, and even those with jobs pull back on their spending during recessions.

The strong dollar also helped to bring down the price of gas, because crude oil is priced in dollars. That means each dollar can buy more oil than it would if the value of the currency was stable or falling. The dollar index, which compares the value of the greenback to major foreign currencies, is up 15% this year. That also means oil prices are rising faster for countries that don’t use the dollar, which dampens global demand.

At the same time, Russia’s oil flows have held up better than feared despite sanctions and the war in Ukraine. Russia’s invasion of Ukraine, and the sanctions that followed, that helped to spark the steep rise in oil and gas prices. The average price the day of the invasion stood at $3.54 a gallon, just a bit lower than it is today. Russia’s announcement Wednesday that it would increase its mobilization of troops helped lift crude oil futures 2% in global markets.

Gas prices will probably remain relatively close to the current levels in the near term, said Tom Kloza, global head of energy analysis for OPIS, which tracks gas prices nationally for AAA.

“I don’t think you’ll see a major move higher or lower,” he said recently, ahead of Wednesday’s modest price rise. He said competing forces will affect prices in the near term.

US refining capacity remains limited. And OPEC along with other oil-producing nations recently agreed to cut production. Both put upward pressure on prices.

Meanwhile, seasonal factors, such as the end of the summer driving season and the annual end of the US environmental regulations requiring a cleaner, more expensive blend of gasoline during summer months, could help ease prices. Also pushing prices lower: Oil traders remain nervous about the state of the global economy.

“Crude has no speculative investment money behind it right now,” he said.

Wholesale gasoline futures point to sharply lower gas prices by the end of the year, with the possibility that gas under $3 a gallon could be common in much of the country by then, Kloza said. But he cautioned “futures prices are a notorious poor predictor of what the future will bring.”

Although sub-$3 gas remains rare – only 5% of America’s 130,000 gas stations are selling gas for under that price, according to OPIS – relatively cheap gas has become far more common with the months of decline. Nearly one station out of four nationwide is selling gas for less than $3.25 a gallon, and 56% are selling gas for less than $3.50 a gallon.

Cheaper gas has been a major boost to the US economy, easing inflationary pressure and giving Americans extra cash to spend. Since the typical US household uses about 90 gallons of gas a month, the drop in gas prices saves those households about $120 a month from what they had been paying since the peak in June.

A one-cent rise in gas prices is not a meaningful change for most drivers, and prices could slump again as global economic concerns grow along with fears that demand for fuel will keep sinking.

Yet if gas prices begin to rise that could undermine the Biden administration and the Federal Reserve’s efforts to keep inflation in check. Falling gas prices are the sole reason America’s consumer prices have remained steady overall during the past few months after rising sharply in 2021 and the beginning part of this year.

Read original article here

Business

All Eyes On OPEC+ As Oil Prices Drop Below $90

Leave a comment

OPEC+ may have to make much deeper cuts to their collective oil production targets this winter as a recession looms over Europe as it struggles with a severe energy crisis and China shows signs of waning oil demand. 

The token 100,000-barrels-per-day (bpd) cut announced this week is largely irrelevant to the oil market balance. But it sent a strong message to the market that the OPEC+ alliance is back in price-watch mode and appears determined not to let oil fall too far below $90 a barrel, analysts say. 

Recession Fears

After an initial rally on the surprise – albeit negligible – cut to their production targets, the oil market saw the OPEC+ move as an admission of expectations of lower demand. This, coupled with fresh “zero-COVID” policy lockdowns in China, weighed on oil prices on Tuesday and Wednesday. Brent Crude prices fell this week to below $90 per barrel – the lowest level since January, before the Russian invasion of Ukraine. Add to this the expected imminent recession in major European economies – triggered by the energy crisis and sky-high prices – and the aggressive interest rate hikes from central banks, including the Fed, and the economic prospects for the world don’t look great right now. 

A recession in the Eurozone now appears likely due to the deepening gas crisis, Fitch Ratings said in a report last week, even before Russia said the Nord Stream gas pipeline to Germany would remain shut indefinitely. 

While it currently looks like OPEC+ is trying to defend the $90 a barrel mark, it may have to cut production much deeper and could end up defending $50 a barrel oil early next year, Clyde Russell, Asia Commodities and Energy Columnist at Reuters, argues. 

Supply Uncertainties 

The global economic slowdown and a looming recession in Europe will weigh on oil demand and prices. But there are major uncertainties in supply, too. Therefore, even in an energy-crisis-induced recession, the oil market could still be tight enough to support high oil prices. That’s because it’s currently anyone’s guess how the planned price cap on Russian oil will impact markets, especially if Russia follows through on its threat to stop exporting its oil to importers that will have joined that cap mechanism. 

Vladimir Putin upped the ante on Wednesday, saying that Russia would stop supplying all energy products to Europe if the EU and its Western allies imposed price caps on Russian oil and natural gas. 

“We will not supply gas, oil, coal, heating oil – we will not supply anything,” Putin said. 

The planned price caps on Russian oil and gas exports are yet another “stupidity,” the Russian president said, adding that Europe has made “stupid decisions” and is now trying to figure out how to get away from them.

Another major uncertainty in supply, this time a bearish factor for oil prices, is the possibility of a revival of the Iranian nuclear deal, although the latest developments point to a move “backwards” in the indirect EU-mediated U.S.-Iran talks on a final draft of a possible agreement. 

On the other hand, the always unpredictable Libya could at any time halt exports again amid still-unresolved differences over who is in control and who should get the country’s main export revenues – those from crude oil. 

OPEC+ In Price-Watch Mode

Due to these uncertainties, it’s no surprise that OPEC+ and Saudi Arabia in particular signaled they would watch oil market developments carefully. The alliance has never publicly admitted that it prefers a certain price of oil, but right now, it looks like it is set on not letting prices fall too much. 

OPEC+ decided on Monday that it could call a meeting at any time to discuss other actions. The group decided to “Request the Chairman to consider calling for an OPEC and non-OPEC Ministerial Meeting anytime to address market developments, if necessary,”  OPEC said.

By giving the alliance’s chairman, Saudi Energy Minister Prince Abdulaziz bin Salman, the power to call a meeting at any time if needed, OPEC+ sent a strong message to the oil market: cuts could come on short notice, “in any form.” This could mean that unilateral cuts may not be off the table, either. 

While the token cut for October doesn’t change anything relating to fundamental supply/demand balances, OPEC+’s readiness to intervene whenever it deems necessary suggests that Saudi Arabia and other influential OPEC+ members believe that oil prices have seen enough sell-offs in recent months already. And they will fight to keep them “stable.” In other words, in the $90-$100 range.

As Brent prices dipped below $90 on Wednesday with recession fears front and center, expect “verbal OPEC+ intervention next,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said.

According to oil broker PVM Oil Associates, the expected rise in oil production from outside the OPEC+ alliance by the end of this year “pales in comparison to the potential supply shortfall on the horizon.”

“And with the Iranian nuclear deal still proving elusive and OPEC+ refraining from opening the taps, the long-running upward trajectory in global oil supply could soon come to an end,” PVM Oil Associates said in a note on Wednesday. 

“As a result, the current tightness could intensify during the last three months of the year. This should be taken as an early warning sign for those betting on further price downside in the year-end period.” 

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:



Read original article here

Business

Dodgy Demand Data? The Oil Price Collapse Conspiracy

Leave a comment

WTI crude oil prices fell to their lowest point since early February on Thursday, giving up virtually all gains since Russia invaded Ukraine. WTI crude for September delivery tumbled -1.5% to close at $89.26/bbl while Brent crude for October delivery fell -2.1% to $94.71/bbl. WTI crude has lost ~9.5% over the course of the week, marking the largest one-week percentage decline since April amid growing fears that oil demand will collapse when western nations descend into a full-blown recession.

While oil producers are certainly beginning to feel the heat, it’s refiners like Valero Energy (NYSE: VLO), Marathon Petroleum Corp.(NYSE: MPC), and Phillips 66 (NYSE: PSX) who have been hardest hit by the pullback thanks to a sharp decline in their refining margins aka crack spreads.

For months, refiners have been enjoying historically high refining margins, with the profit from making a barrel of gasoil, the building block of diesel and jet kerosene, hitting a record $68.69 in June at a typical Singapore refinery. The margin later settled in the high 30s a few weeks later, a level still nearly four times higher than the $11.83 at the end of last year, and some 550% above the profit margin at the same time in 2021.

But crack spreads have now gone into full reverse: according to Refinitv data, Asian gasoline margins plunged more than 102% in July to a discount of 14 cents a barrel to Brent crude, a far cry from a premium of $38.05 a barrel they reached in June. Asian refining margins have now crashed to just 88 cents a barrel over Dubai crude,  from a record $30.49 in June.

The effect: a sharp rise in inventories from the United States and Singapore to Amsterdam-Rotterdam-Antwerp.

Refiners are being forced to cut gasoline output to minimize losses and switch to producing more profitable fuels.

Indeed, Taiwan’s Formosa Petrochemical Corp. (6505.T), Asia’s top fuel exporter, is planning to reduce operating rates at its residue fluid catalytic cracking (RFCC) units by 5% in the coming weeks, with a Formosa spokesman telling Reuters that the company plans to sell more very low sulphur fuel oil (VLSFO) due to higher margins for those products. 

The Big Conspiracy

The collapse in oil prices has been so epic and unexpected that some oil pundits are now accusing the Biden administration of fabricating low gas demand data in a bid to hammer oil prices.

To wit, in late June the EIA shut down reporting for several weeks, ostensibly due to a server malfunction. But as ForexLive has pointed out,  gasoline demand data has been consistently bad ever since the EIA returned: “Maybe there’s an issue with reporting or maybe it’s a conspiracy“, ForexLive has declared.

Even Wall Street has begun questioning the EIA data.

Bank of America energy strategist Doug Legate has published a note titled the “fall of gasoline demand appears grossly exaggerated.’’

“For the week ending July 22nd, implied gasoline demand rebounded to 9.2 million b/d – a 1 million b/d increase vs the last two week average, and the second highest level of 2022,” BofA wrote in the note to clients. Curiously, the EIA reported a steep drop in gasoline demand shortly thereafter, prompting Piper Sandler global energy strategist to label the data “crooked”, saying the methodology left “significant room for error”. 

Related: What’s Really Happening With Gasoline Demand?

“We are supposed to believe that in July, in the middle of driving season we are only using 8.6 million barrels per day. That would be down half a million barrels a day from May of this year; that would be below the Covid low of 2020,” Sandler noted. “So we ask all the refiners, we ask all the retailers, we ask everybody that reported earnings this season. Every single one of them tells you that their sales are not down materially from even pre-covid days. Some report record high sales,” he added.

Piper Sandler’s allegations are buttressed by U.S. refining giant Valero. Asked about falling gasoline demand at the company’s earnings call last week, CEO Gary Simmons had this to say:

“I can tell you, through our wholesale channel there is really no indication of any demand destruction… In June, we actually set sales records. We read a lot about demand destruction and mobility data showing in that range of 3% to 5% demand destruction. Again, we’re not seeing it in our system.”

Further, alternate demand data from GasBuddy deviates considerably from EIA’s. GasBuddy tracks retail gasoline demand at the pumps in the U.S. According to GasBuddy, there was a 2% rise in gasoline demand last week, making it the strongest demand of the year. In sharp contrast, the EIA reported a 7.6% drop in demand for the same time period.

The Biden administration certainly is gunning for even lower fuel prices. In an interview with Bloomberg on Tuesday, Amos Hochstein, the White House’s senior adviser for global energy security, said that gas and oil prices need to go even lower while U.S. producers and OPEC+ need to raise output.

But as Adam Button, chief currency analyst at Forexlive, notes, it’s the Biden administration calling the shots now, and “at the end of the day, traders have to trade what’s in front of them”.

 “Right now it’s a crude chart that’s breaking support after a major period of consolidation — that’s not good. The calls for a recession are growing louder crude demand has a long history of following global growth. There are supply factors that will eventually be bullish — like the SPR releases ending in October — but that’s months away and OPEC is still adding some barrels,” he said.

By Alex Kimani for Oilprice.com

More Top Reads From Oilprice.com:



Read original article here

Business

Recession Fears Can’t Curb The Commodity Boom

Leave a comment

Earlier this week, Brent crude fell below $100 per barrel for the first time in months. So did West Texas Intermediate. Copper dropped to the lowest in almost two years. It looked like inflation had done its evil deed. A recession was coming, and demand for commodities was about to plunge. And then both oil and copper rebounded. It lasted all of one day, although the price of copper has been fluctuating with the flow of news from China and the prospects of its economy for the rest of the year and the medium term. The latest copper price rebound was, in fact, attributed by some to the possibility that the Chinese government would provide additional stimulus to keep the economy going at a healthy pace.

The rebound in oil, however, was easy to see coming despite the notorious uncertainty of oil markets. And the reason it was easy to see coming was fundamentals. Whatever happens in the speculative market, the fact that the global supply of oil is tight while demand is very much alive and still rising cannot be ignored.

The Financial Times out it quite clearly. In an article from earlier this week addressing the price drop across commodities, the authors said that “Hedge funds have been central to the recent price declines across commodities — selling out of long, or positive, positions in certain commodities and often replacing them with bearish wagers.”

If the big scare of 2020 and 2021 was Covid, this year has two: Russia’s Vladimir Putin and recession. And it is increasingly looking like the latter is overtaking the former in terms of scare value.

Talk about recession is all over the news. Central banks are being targeted with criticism for tightening monetary policy too fast, accelerating recessionary pressure. It was only a matter of time before hedge funds decided to play it safe and start selling out. But, and this is the important bit, this has nothing to do with fundamentals. Fundamentals are why oil was up a day after the dip.

Just how much nothing market price movements have to do with actual demand and supply sometimes was recently highlighted by Wells Fargo. According to the bank’s investment strategy division, the United States, the world’s largest oil consumer, is already in a recession.

“There’s the technical part of the recession, but then there’s the meaningful deterioration in consumption and employment,” Wells Fargo Investment Institute’s senior global market strategist Sameer Samana told Bloomberg this week. “The technical part is a first half story and the brunt of the unemployment and consumption is the second-half,” Samana added.

Inflation, according to Wells Fargo analysts, has proven to be much faster and more broad than initially expected, consumer sentiment has as a result worsened, and businesses are changing their spending plans. But oil demand is still robust as it appears to be across the world, even though some analysts are projecting a decline. According to Citi’s Ed Morse, for example, “Almost everybody has reduced their expectations of demand for the year.” Demand was “simply not growing on an empirical basis to the degree that people had expected,” Morse told Bloomberg TV.

Related: Buffett Buys Another $700 Million In Occidental Shares

Demand might not be growing per expectations—it would have been a wonder at these prices—but supply is not exactly booming, either, which was what probably motivated Saudi Arabia’s latest price hike for Asian buyers to near-record levels. Sellers don’t tend to hike their prices when they expect demand for their goods to decline.

No wonder, then, that Goldman Sachs, unlike Citi, says that oil could yet hit $140 per barrel, even with all the recession fears swirling around the market. “$140 is still our base case because, unlike equity, which are anticipatory assets, commodities need to solve for today’s mismatched supply and demand,” Goldman’s Damien Courvalin told CNBC this week.

These price projections, both from Citi and from Goldman, do not factor in supply disruptions—the same supply disruptions that just a couple of months ago, even a month ago, held markets captive. The disruptions are mainly expected to come from Russian oil exports, but this may have by now been factored into prices as there are still close to six months until the European Union’s oil embargo enters into effect.

Meanwhile, alternatives to this supply for Europe remain few and far between simply because of the size of Russian oil exports to the continent. This would likely continue having a bullish effect on oil prices, whatever the economic trends. Even if a recession dampens the demand for oil, it would take quite a while for real demand destruction of the kind that Citi says could push oil to $65 per barrel. 

Recession fears have solid foundations. There is little doubt about it. Commodity fundamentals, however, not only in oil and gas but in agricultural commodities and metals, have not changed just because hedge funds have suddenly started worrying about a recession. They are still tight. And this is putting a floor under prices that will remain there as long as supply remains tight.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:



Read original article here