Commodities News

Chinese Demand Destruction Counters The Risk Of A Russian Oil Ban

By Tom Kool 

While lockdowns in China are causing significant demand destruction and adding downward pressure to oil prices, the EU’s threat to ban Russian oil imports has the potential to send prices significantly higher.

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Friday, April 15, 2022 

China’s descent into an almost nationwide COVID lockdown has triggered the first large-scale demand roadblock of 2022, with some 45 cities accounting for 40% of the country’s economic output being under some form of mobility curtailment. On the other hand, the European Union continues to mull banning Russian oil imports, pushing up the Brent complex even higher compared to other regional benchmarks. ICE Brent front-month futures have closed the week slightly above the $110 per barrel mark, but uncertainty regarding both supply and demand will ensure volatility in the coming days.

Henry Hub Jumps to 13-Year Highs. Boosted by an unusually small gas inventory build for this time of year and a recent drop in nationwide US output, US Henry Hub futures rose to a 13-year high of $7.3 per mmBtu, marking the strongest weekly gain since August 2020 and bringing the 2022 to-date increase to almost 100%. 

Putin Warns of Energy Flow Redirection. Russia’s President Vladimir Putin said that Moscow will redirect its energy eastwards and build new infrastructure toward Asia, arguing that unfriendly regimes in the West are driving up prices for themselves despite their dependence on Russian flows. 

Chinese Refiners Cut Rates on COVID Demand Slump. China’s refiners are cutting refinery runs at the biggest scale since the beginning of the pandemic in early 2020, cutting intake by 900,000 b/d in April (equivalent to 6% of domestic demand) as the country continues to grapple with COVID lockdowns. 

EU Ban on Russian Coal Ramps Up Prices. After Brussels agreed on a phased-in ban on Russian coal, the regional benchmark API2 gained some 15% week-on-week and is currently trading around $320/mt, further buoyed by the EU ban on Russian wood which will presumably add another layer of coal demand in Europe. 

Texas Oil Fields Face Worst Fire Risk in a Decade. With almost 85% of Texas suffering from drought for months, leaving grasses dried and ready to burn, the US Storm Prediction Center warned that parts of West Texas are under extremely critical fire risks. This is a risk for shale fields in the Midland and Odessa basins. 

Italy’s ENI to Boost Egyptian Gas Output. In another move destined to boost liquefied natural gas supplies going to Europe, the Italian energy giant ENI (NYSE:E)signed a deal to boost gas production in Egypt, particularly at the supergiant Zohr field, resulting in some 3 billion cubic meters of LNG exports more this year. 

Singapore Probe Finds HSFO Contamination Source. The Maritime and Port Authority of Singapore said its preliminary findings found that the chlorine-containing contaminated high-sulfur fuel oil that subsequently tainted the bunker fuel of some 200 vessels was supplied by trading firm Glencore (LON:GLEN)

New York Attorney Probes US Gasoline Prices. New York Attorney General Letitia James has launched an investigation into whether the oil industry has engaged in gasoline price gouging, only a week after representatives of US Big Oil testified in Congress that no one company sets the price for gasoline. 

New Petrobras CEO Pledges Consistency. Jose Mauro Coelho was formally elected the new CEO of Brazil’s state-controlled oil major Petrobras (NYSE:PBR), vowing to maintain the company’s pricing policies, contradicting the Bolsonaro administration’s ambition of seeing fuel prices lower. 

Saudi Arabia Not Against Splitting Contentious Gas Field. Saudi Arabia and Kuwait invited Teheran to hold negotiations to determine the eastern limit of the Durra natural gas field that the two Arab Gulf monarchies wanted to develop jointly, less than a month after Iranian officials called the Saudi-Kuwaiti agreement illegal. 

Germany Mulling Fourth Floating LNG Terminal. Having secured three FSRU LNG projects via German energy firms RWE (FRA:RWE) and Uniper (ETR:UN01), the German government is now considering leasing a fourth floating unit to diversify its gas supply away from Russia.

Nigeria Approves $10 Billion Fuel Subsidy. Nigeria’s government approved a $10 billion petrol subsidy, increasing the state subsidy tenfold as high global prices and lower production at home (annual plan downgraded to 1.6 million b/d) continue to push domestic fuel prices up. 

Japan Wants More LNG Investment. Japanese companies plan to step up their investment in upstream projects for liquefied natural gas to boost offtake volumes, with the ramifications of the Russia-Ukraine war intensifying competition for spot LNG cargoes globally, forcing Asian buyers to outbid Europe. 

Wind Power Overtakes Coal and Nuclear in US Power Generation. For the first time ever, wind power became the second-largest source of electricity generation in the Lower-48 states in late March, overtaking both coal and nuclear and tallying a total output rate above 2,000 GWh.

By Tom Kool for

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