Bullish sentiment is building once again in oil markets

Bullish sentiment is returning to oil markets as China continues to open up post-Covid, Russia hints at a production cut next year and a winter storm sweeps across North America.

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Natural gas

– Daily natural gas production in the United States has been trending around 90 billion cubic feet this week, 10% below normal, as extreme cold swept across two-thirds of the country.

– The impact of the freeze was felt most markedly in North Dakota, where 300-350,000 b/d of Bakken production remains idle, about a third of pre-storm readings.

– Daily Prices in West Texas leap to $9/mmBtu by the weekend, although the South is expected to warm significantly on Tuesday, spot prices will almost certainly decline from here.

– The pain is still being felt in New England, where the cold will be slower to abate, daily prices at the Algonquin price center are still above $20/mmBtu, after trading late last week at the Asian LNG.

Market Drivers

– US LNG producer Venture Global signed a 20-year contract with Japan Inpex (TYO:1605) to supply it with 1 million tons of LNG per year, to be sourced from the upcoming Calcasieu Pass 2 facility.

– UK power company BP (NYSE: BP) signed a 20-year extension to its production sharing contract for three fields in West Papua, Indonesia, feeding the Tangguh LNG plant, remaining operator of the fields until 2055.

– ENI branch focused on Norway Vaar Energi (OSL:VAR) done a 57-132 MMboe gas discovery near the Goliath field in the Barents Arctic Sea, the largest discovery on the Norwegian continental shelf this year.

Tuesday, December 27, 2022

China is phasing out its coronavirus-related restrictions, and the Asian country’s National Health Commission announced it would end its quarantine requirements in January, providing another boost to oil demand across the country. Russia’s claim that it could cut production by 5-7% in 2023 and a winter storm that devastated the US added to the bullish mood that sent WTI breaking above the $80 per barrel.

WTI open interest is the lowest in 16 years. Based on CFTC figures, open interest held in WTI NYMEX futures and options fell to its lowest level since August 2006 during the week ending December 20, reaching just 1.82 million contracts, a 25% less year after year.

USGC refineries adjust to freeze. Most refineries on the US Gulf Coast have increased flaring in recent days as operations were halted amid equipment failures caused by sub-zero temperatures, despite not seeing No power outage I’ve seen on the East Coast.

Winter storms trigger massive US power outages More than 700,000 homes and businesses experienced Power outages across the US this weekend as winter storms hit the eastern half of the country, with the bulk of them taking place in the New England region.

Alberta crude can flow again. US pipeline regulator PHMSA has approved TC Energy (NYSE:TRP) plans to restart the inactive section of the Keystone pipeline from Steele City to Cushing, Oklahoma, without specifying the exact date, adding that work would still take “several days.”

Turkey puts Cyprus back on the agenda. It has been less than a week since Cyprus found another offshore gas discovery led by ENI (BIT:ENI)the turkish government accused the island nation of rising tension in the eastern Mediterranean, saying it would not allow exploration without its consent.

US faces lawsuit in Alaska for neglect of beluga rights. Cook Inletkeeper, an environmental group, is preparing suing the US government for failing to adequately consider risks to endangered species, such as beluga whales, in its upcoming lease sale of 258 acres offering in Alaska’s Cook Inlet.

Nigeria offers 7 new offshore oil blocks. The first major round of upstream licenses to take place in Nigeria, which has been cash-strapped for the past 15 years, will feature the African country’s upstream regulator, NUPRC. offering seven offshore blocks in the Benin Basin in water depths from 1,150 m to 3,100 m.

Japanese insurers seek reinsurance to resume Russian coverage. The major Japanese insurance companies are in talks with new reinsurance companies after their previous providers left as maritime war insurance is required to boost Japan’s capital LNG production from Sakhalin.

Russia says it is ready to restart the idle pipeline. Russian Deputy Prime Minister Alexander Novak said Moscow is ready to resume pipeline deliveries to Europe via the Yamal-Europe pipeline which was halted in December 2021, however for this to happen it would first have to lift sanctions against the operator of the Polish section of the pipeline.

Turkey finds even more gas in the Black Sea. Turkish President Tayyip Erdogan Announced the discovery of a new gas field in the Turkish part of the Black Sea, with the Caycuma field adding 58 bcm of reserves on top of the huge Sakarya discovery of 650 bcm.

Global zinc stocks bottomed out. As zinc stocks at London Metal Exchange-registered warehouses plunged to a century low of just 36,500 tonnes, with Shanghai inventories similarly depleted, galvanized metal is experiencing severe supply shortages through despite abundant smelter closures.

Russian bank takes Glencore to court. The largest bank in Russia Sberbank (MCX: SBER) archived a lawsuit against the international trading company Glencore (LON: GLEN) for failing to pay some $120 million for two oil shipments delivered in March 2022, the latter citing restrictions caused by sanctions.

Iron ore jumps on China’s policy support pledge. After the People’s Bank of China called to strengthen the country’s real estate policy to boost growth again, iron ore prices rose to $119 per metric ton on the Dalian bourse, putting aside rising coronavirus cases.

By Michael Kern for Oilprice.com

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