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Bearish sentiment is building in oil markets

Bearish sentiment appears to be rife in oil markets, with OPEC+ production cuts and supply threats from Russia unable to significantly slow the fall in oil prices.

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Friday, September 9, 2022

Weak macro data continues to rock oil markets, with ICE Brent trending around $90 a barrel, rebounding from multi-month lows seen mid-week. News of weak Chinese trade data and ECB interest hikes appear to dominate a much more relevant story for supply and demand from the straying Iran nuclear deal, suggesting that bearish sentiment is widespread. That being said, Russian threats of supply cuts appear to have countered a very bearish EIA inventory report, with oil prices climbing early Friday morning.

The gas-oil transition is driving demand for crude. Amid soaring gas prices, it appears that some power generators switching to oil and other liquids have the potential to increase global oil demand of around 500,000 to 600,000 b/d during the winter season, at least half of which in Europe.

Ecuador makes an agreement with indigenous groups. In an effort to avoid street protests that have repeatedly hampered oil production, the Ecuadorian government agreed to declare a temporary moratorium on 16 oil blocks considered to be on ancestral indigenous territory.

Trading Majors Launch First Blockchain Oil Trading. The trading companies Gunvor and TotalEnergies (NYSE: TTE) have concluded the first commercial confirmation of a blockchain-based deal, using the VAKT ecosystem, a start-up co-owned by Shell (LON:SHEL) or Mercury.

US energy consumption will hit record highs this year. According to the IEA forecaststhis year’s electricity consumption in the United States will hit a record high of 4.029 billion KWh amid a warmer summer, up 3% year-over-year, with natural gas remaining the main source of production (37%).

British Prime Minister caps energy bills. Britain’s new Prime Minister Liz Truss has pledged to cap average household energy bills for the next 2 years at around £2,500, forcing the government to borrow some $115bn to fund the freeze, sending the British pound at its weakest level against the U.S. dollar since 1985.

Repsol sells an upstream unit to a US fund. Spanish oil company Repsol (BME:REP) has sold 25% of its upstream division, producing some 570,000 boe/d, to US investment fund EIG for $4.8 billion, with the proceeds of the transaction earmarked for the company’s investments in renewable energy.

Russia is threatening to shut down completely if the caps are implemented. Russian President Vladimir Putin has threatened to halt energy exports to any country that applies price caps on the country’s oil, gas and coal, raising the stakes of Europe’s energy crisis as the EU is considering a price cap for the pipeline.

Indonesia wants to buy Shell’s stake. Indonesian Investment Minister Bahlil Lahadalia said the country could form a consortium will take over a 35% stake in the Masela gas project from the British energy company Shell (LON:SHEL) signaled its intention to abandon the $20 billion project.

The White House is considering more SPR releases. The U.S. strategic oil reserve is at its lowest level since 1984 after the release of 173 million barrels of SPR stockpiles, with just 7 million barrels remaining from the Biden administration’s 1 million bpd release, a said US Energy Secretary Jennifer Granholm. reported Washington is considering other versions.

Tesla is about to build a lithium refinery in Texas. The world’s leading producer of electric vehicles Tesla (NASDAQ:TSLA) is considering setting up a lithium refinery that would turn the ore into battery-grade metal, he said his final decision will be based on his ability to get tax relief from TX authorities.

Venezuelan production on the rise. Venezuelan crude production rose sharply in August to 750,000 bpd. up 100,000 bpd month-over-month as state oil company PDVSA ramped up production of heavy barrels from the Orinoco Belt thanks to the availability of diluents, mostly condensate Iranians.

Another German company bites the dust. VNG, one of Germany’s largest importers of natural gas, became the second major company to ask the government for funds to stay afloat, with soaring gas prices putting the company “into increasingly critical financial straits through no fault of its own”.

Gazprom switches to Yuan-Ruble hybrid payments. Russia Gazprom (MCX:GAZP) and that of China CNPC (SHA: 601857) changed the terms of their 30-year gas supply contract via the Power of Siberia-1 gas pipeline, moving to a hybrid ruble and yuan payment routine on a 50:50 basis.

Sichuan’s woes push coal prices even higher. Coal prices have soared in recent weeks, but extreme drought in Sichuan, China’s hydroelectric generation hotspot, continues to add upward pressure on coal prices, readings from l ‘ICE Newcastle reaching a record high of $460/mt this week.

By Tom Kool for Oilprice.com

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