Growing uncertainty over the OPEC+ agreement and warnings from the IEA of another oil price war has caused volatility in oil markets to spike.
Chart of the Week
– Rystad Energy sees U.S. crude production closing this year at 11.62 mbpd, with September-October output dropping back from the summer months.
– Despite the overall beneficial pricing environment, 2021 production is hindered by the fact that some 35-40% of shale operators have hedged their output, i.e. producing more would trigger financial losses.
– US oil production, boosted by robust drilling from Texas and New Mexico, is expected to surpass the 12mbpd mark by October 2022.
– Albermarle (NYSE:ALB) rose to an all-time high this week, surging past $185 per share, with other lithium producers and ETFs joining the upward trend despite there being no immediate news on the company or the broader sector.
– Saudi Aramco dropped Morgan Stanley (NYSE:MS) as an adviser for the sale of its gas pipeline system across Saudi Arabia, picking JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) for the role instead.
– Chinese ride-sharing firm DiDi Global (NYSE:DIDI) has continued its downfall, seeing its market cap shrink to $53 billion on Tuesday as China’s cyberspace administration compelled domestic app stores to remove DiDi’s apps.
Tuesday, July 13, 2021
Growing uncertainty over the OPEC+ agreement and warnings from the IEA of another oil price war has caused volatility in oil markets to spike. Oil prices were up on Tuesday morning, however, with several analysts expecting Saudi Arabia to get its way eventually in its stand-off with the UAE.
Prospect of Saudi-UAE Deal Still Distant. Despite Russia stepping up its efforts as a diplomatic intermediary, Saudi Aramco and the UAE are still far from finding common ground on the future of OPEC+ production cuts. In its current form, this month’s OPEC+ production quota would get rolled into the next month unchanged, leaving markets even tighter than originally expected.
Saudi Aramco Refuses to Grant Above Term Volumes. According to Reuters reports, Saudi Aramco will supply full-term commitments to at least 5 Asian buyers in August 2021 but it will not supply any incremental volumes beyond that despite being asked to. This news would suggest that fears of OPEC countries starting another price war may be overblown.
Lull in Chinese Crude Buying Continues in June. China’s customs data indicate another meager month of crude buying this June, with purchases averaging 9.8mbpd. Against high outright prices, Chinese refiners have opted to run down stocks built up over 2020 whilst independents had their purchasing activity hindered by import quota allowances running out.
Natural Gas Prices Forecast to Stay Elevated. All leading commodity-dealing banks have revised their US annual average gas prices upwards over the course of the year. Bank of America was the latest to do so, assuming a 3.10 $/mmBtu price for this year and $2.80/mmBtu for 2022. The US EIA still leads the bullish pack with its $3.34/mmBtu estimate.
EU to Issue 2030 Green Policy Set. The European Union will publish its first set of climate actions this Wednesday, aimed at speeding up the bloc’s emission-cutting efforts. Reuters reports that the first draft will propose 12 policies across four areas (energy, industry, transport and heating), including a soon-to-be-introduced jet fuel tax and a nudge to utilize more low-carbon aviation fuels.
Kuwait Sees Power Demand Hit All-Time High. Kuwait became the hottest place on earth this year and it continues to record ever-higher daily power demand numbers (the latest record is 15.35 GW on the 12th of July). With associated gas not enough to cover domestic demand as OPEC+ capped output, Kuwait has been increasingly turning towards burning crude.
Guyana Reissues Tender to Market Government Crude. Guyana’s government relaunched its tender to market the government’s share of crude, amending the criteria so that companies like Hess Corp (NYSE:HES) or Royal Dutch Shell (NYSE:RDS.A), i.e. participants in the country’s upstream sector or active buyers of Liza cargoes, would not be automatically disqualified. The submission deadline is August 03.
The Pandemic Has Reined In International Piracy. The International Maritime Bureau reported that H1 2021 has seen the lowest level of piracy incidents since 1994, with 68 reported incidents over the past six months. The Gulf of Guinea continues to be the most dangerous area on earth for shippers, with 50 kidnappings and one crew fatality so far this year.
Coal Prices Spiral Out Of Control On Distorted Supply. Asian coal prices have risen to 10-year highs, with Australia’s 6700kc GAD Newcastle coal trading just south of the $140 per metric ton mark. China’s continuing ban on Australian goods has compelled local producers like Glencore and BHP Billiton to fight for other Asia Pacific markets like South Korea and Japan, whilst Beijing is forced to buy increasing amounts of lower-quality Indonesian coal volumes.
US Allows LPG Exports into Venezuela. The US Treasury allowed exports of LPG into Venezuela, the first sign of sanctions easing under the Biden Administration. Venezuela used to be self-sufficient in LPG but decrepit infrastructure and declining production rates have pushed its own supplies into the ground, despite the nation still relying on it for cooking. Trading company Trafigura used to be the leading LPG supplier for Venezuela before November 2018.
Commodity Surge Triggers Shipbuilding Boom. South Korea’s Ministry of Trade, Industry, and Energy reported that Korean shipbuilders recorded the highest number of new orders in 13 years during H1 2021, at 10.88 million compensated gross tons. The 100-LNG-vessel order from Qatar Petroleum is likely one of the largest drivers.
Copper Refuses To Drop On China’s State Reserve Release. Sticking to its promise of conducting a more science-guided commodities policy, China will release some of its copper stocks (20,000 mt) to ensure “market stability”. Yet even as several Chinese smelters have seen seasonal maintenance curbing their demand, copper prices remain elevated above $4300 per pound.
Chinese LNG Buyers Might Be Triggering An Oil Index Return. Malaysia’s Petronas and China’s CNOOC have signed a 10-year supply deal which would see the former providing 2.2 mtpa LNG over a decade. The covenant accounts for the usual Asia-sourced LNG as well as potential volumes from the prospective LNG Canada project. Furthering the Brent-indexation of Malaysian LNG, all the non-Canadian LNG volumes will be pegged to the global crude benchmark.