Oil prices crashed by more than seven percent on Tuesday morning as demand destruction fears due to new lockdowns in China, soaring inflation, and a strong dollar took center stage.
– The International Energy Agency has warned that, despite the current energy crisis being potentially the worst ever, it is still far from being over.
– International attention has shifted from oil markets, which have seen prices crash back below $100, to natural gas, where a perfect storm is shaping up ahead of the 2022/2023 winter season.
– While IEA chief Fatih Birol extolled the importance of clean energy, he warned of reliance on China as Beijing is set to control 95% of the global supply chain for solar by 2025.
– In addition to the above, the strength of the US dollar, which has risen to 20-year highs and reached parity with the euro, will keep commodities under pressure.
– Canadian oil firm Suncor Energy (TSE:SU) saw the resignation of CEO Mark Little after another worker fatality at its production site, marking the end of activist investor pressure for a corporate overhaul.
– US oil company ConocoPhillips (NYSE:COP) might see a reversal of its Alaskan project fortune as the Biden Administration is reportedly looking into ways to unlock the $3 billion Willow project, blocked in 2020 by a district court.
– US energy major ExxonMobil (NYSE:XOM) has been blocked from selling its oil assets in Nigeria to local Seplat Energy following a court ruling as state company NNPC seeks to take over the permits itself.
Tuesday, July 12, 2022
A stronger dollar, high inflation, and recurrent COVID woes in China sent oil prices crashing this morning, with WTI falling more than 7%. Even OPEC, the stalwart of market bullishness, acquiesced to expectations of weaker demand coming ahead of recessionary pressures and lowered its 2023 demand growth forecast to 2.7 million b/d. However, even this prediction is predicated on no escalation around Ukraine and China rising above its lockdown blues, which, considering that some 30 million people there are still under restrictions, might turn out to be overly optimistic.
Hedge Funds Increasingly Move Out of Oil. Amid widespread recession fears, hedge funds and other money managers have been quitting their oil positions at one of the fastest rates in the post-pandemic period, selling a total of 201 million barrels in the past four weeks.
Nord Stream Turbines to Return to Germany. The Canadian government has granted a sanctions exemption and allowed the return of a gas turbine for the Gazprom-operated Nord Stream 1 pipeline, currently undergoing a 10-day planned maintenance.
President Biden Faces Limited Saudi Options. Despite assurances from national security adviser Jake Sullivan that US President Biden will push for more oil production, a lack of immediate spare capacity in Saudi Arabia and the UAE would make oil-related discussions somewhat awkward.
14 Firms Get SPR Allocations in Latest Tender. A total of 14 companies were awarded contracts in the latest strategic crude sale that saw the offering of 45 million barrels (39 million barrels were allocated), most notably to US firms Valero (NYSE:VLO), Chevron (NYSE:CVX), oath ExxonMobil (NYSE:XOM).
Texas Heat Brings Local Grids Under Unprecedented Pressure. ERCOT, the operator of Texas’s power grid, has called on residents to conserve energy with temperatures across the state beating previous all-time highs of 105 °F, sending regional power prices spiraling.
Indian Coal Imports Reach Record Peak. Despite international coal prices remaining high, India’s coal imports in June hit a record high of over 25 million tons as power demand in the country is growing at the fastest rate in almost 40 years.
Russia’s Current Account Soars Despite War. Russia’s current account surplus reached a new quarterly record in Q2, soaring above $70 billion, with sanctions so far having a much bigger impact on imports into Russia than on its commodity exports abroad.
CPC Supply Disruption Averted. Several days after causing an uproar across Europe, a Russian court of appeals softened the suspension of the CPC terminal, a key conduit for Kazakh crude, to a $3,200 fine for environmental violations.
Cheniere Asks White House to Relax Pollution Rules. US LNG exporter Cheniere Energy (NYSEAMERICAN:LNG) has formally asked the Biden Administration to exempt it from national emission limits under the US Clean Air Act that imposes restrictions on carcinogens like benzene and formaldehyde.
France Starts Burning Oil for Power. Setting up contingency plans for an eventual cut-off of Russian gas, France’s industry majors such as Michelin (EPA:ML) or Stellantis (BIT:STLA) have made relevant preparations and converted boilers to run on oil in case gas is no longer available.
Chinese Lithium Firms Expand into LatAm. Just as the Chinese stock market was falling on the news of new Covid lockdowns, the country’s leading lithium compounds producer Ganfeng Lithium (SHE:002460) announced it will buy Argentina-focused Lithea Inc. for $960 million, boosting its brine production potential.
Renewed Covid Fears Depress Iron Ore. With China seeing another wave of Covid-triggered lockdowns, benchmark iron ore prices have plunged this week on fears of weak Chinese demand, seeing the front-month Dalian contract lose 4% in one day and drop to $110/mt.
Brazil Wants Discounted Russian Diesel. Brazilian President Jair Bolsonaro claimed a deal was close with Moscow to buy discounted Russian diesel, potentially easing his long-time standoff with the national oil firm Petrobras (NYSE:PBR) with regards to fuel pricing in the South American country.
By Michael Kern for Oilprice.com
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