Bullish OPEC+ Rhetoric Sends Oil Prices Soaring

Crude prices soared on Tuesday morning after OPEC+ leaked that it may decide to cut output once again if, and when Iran makes a full comeback to oil markets.

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Chart of the Week

Diesel Spikes Just Around the Corner

– Diesel prices have demonstrated exceptional strength this year, flipping to a premium to gasoline of some $20 per barrel over the summer months, and market data indicates this trend is far from over.

– ULSD prices in Europe’s key ARA trading region have been trending around $1,080 per metric ton lately, down some $400/mt from their erstwhile peak in March.

– It seems highly likely that September-October will see a diesel price surge, considering record low diesel stocks in Europe (as continuous backwardation discourages storage) and the nearing of harvest and heating seasons.

– Considering that U.S. middle distillate stocks are some 20 million barrels below the 5-year range, as well as the coming into effect of European sanctions vs Russia in February 2023, it should not come as a surprise that diesel futures contracts have been the most actively traded ones lately.

Market Movers

– French major TotalEnergies (NYSE:TTE) has launched the $4.3 billion Seagreen wind farm off the coast of Scotland, along with partner SSE Renewables it expects generation of some 5 TWh per year.

– According to German newspaper Handelsblatt, the car-making giant Volkswagen (ETR:VOW3) aims to enter the mining business in Canada to ensure its raw material supply to produce EV batteries, taking stakes in mines and mine operators.

Neo Performance Materials (TSE:NEO) agreed to buy Hudson Resources’ (CVE:HUD) Sarfartoq mining project in Greenland for $3.5 billion, confirming the fact that the hunt for rare earths is intensifying globally.

Tuesday, August 23, 2022

When many started doubting the necessity and viability of OPEC+, the oft-mooted Iranian nuclear deal seems to have given the oil group a new meaning and a new direction. Almost in unison, participant countries and respective top officials have started talking of concerted production cuts should the EU-brokered Iran deal take place anytime soon. Oil prices took notice immediately, recording hefty increases both Monday and Tuesday, with ICE Brent currently trending around the $100 per barrel mark. In effect, nothing has happened yet, but we are already near triple-digit territory.

OPEC+ Starts Talking About Production Cuts. Saudi Energy Minister Prince Abdulaziz bin Salman stated that amidst a possible revival of the Iranian nuclear deal and a growing disconnect between paper and physical markets OPEC+ will consider cutting production at any time and in different forms.

China Heatwave Curbs Industrial Production. All of China’s southwestern regions have extended power consumption curtailments as the country heads into its 12th straight day of extreme heat, so far impacting mostly solar equipment producer JinkoSolar (NYSE:JKS) and battery maker CATL (SHE:300750).

UN Warns of Possible Libya Relapse. The UN Libya mission warned that the ongoing mobilization of forces and increasing threats to use force make it all the more likely that clashes will degenerate into another period of sustained warfare in the war-torn North African country.

CPC Loadings Disrupted by Damaged Equipment, Again. Oil exports from the CPC terminal in the Black Sea will face another disruption, lasting at least one month as the Russian operator of the port began repairs on two of its SPMs, limiting exports to 60-70% of usual capacity.

Henry Hub Surpasses $10/mmBtu Mark. Buoyed by strong LNG demand globally and hotter-than-usual summer weather that has made it harder to stock up gas, the front-month US gas futures have surpassed $10 per mmBtu threshold for the first time in 14 years.

India Wants to Build a New Refinery. Indian oil firm Chennai Petroleum (NSE:CHENNPETRO) stated it had formed a JV with its parent company Indian Oil to build a new 180,000 b/d refinery in the southern Tamil Nadu state, expected to cost $3.95 billion.

Chinese Purchases of Russian Coal at 5-Year High. As deliveries of Russian coal to Europe saw the coming into effect of EU sanctions, China has ramped up purchases from its northern neighbor, taking in 7.42 million tons last month, the highest in at least five years.

U.S. Gasoline Prices Continue Their Descent. U.S. gasoline prices declined for the tenth straight week, with the nationwide average reaching $3.60 per gallon, with California remaining the only state to record prices above $5/USG.

Related: The World’s Biggest LNG Exporter Has A Pipeline Problem

Another Nord Stream Maintenance Sends TTF Ballooning. Russia’s state-controlled gas firm Gazprom (MCX:GAZP) indicated it would halt deliveries via the Nord Stream 1 pipeline for three days at the end of August, sending front-month TTF prices to another all-time high of €290/MWh.

Cyprus Gas Reserves Get Massive Boost. France’s TotalEnergies (NYSE:TTE) and Italy’s ENI (BIT:ENI) have announced a high-impact natural gas discovery in offshore Cyprus, with the Cronos-1 well wielding preliminary estimates of some 2.5 TCf in place, the third huge gas find in the country’s waters.

U.S. Court Upholds Conoco’s $8.5 Billion Venezuelan Toll. The World Bank’s International Centre for the Settlement of International Disputes awarded U.S. oil firm ConocoPhillips with $8.75 billion as a reward over the expropriation of its Venezuelan oil assets.

More Carbon Pressure On Europe. European carbon prices have soared to record highs last Friday, reaching €99 per metric ton CO2, as the continent’s power generators have maximized coal and fuel oil burning wherever possible, just to avoid ballooning natural gas prices.

Iron Ore Boosted by China’s Lending Rate Cut. Moving up to $102/mt, Dalian iron ore futures have been bolstered by China’s central bank lowering of mortgage reference rates this week, indicating that Beijing is seeking to maintain construction activity healthy.

By Tom Kool for Oilprice.com

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