Crude oil prices moved modestly higher on the morning of the 4th of July following the news that Saudi Arabia would extend its voluntary oil production cuts through August.
Chart of the Week
- Saudi Arabia’s extension of its 1 million b/d production into August has had little to no effect on overall oil prices, with ICE Brent settling at $74.65 per barrel at the end of the day, 35 cents lower than last Friday.
- All this indicates that OPEC+’s supply cuts are perceived by the market at large as a bearish signal of suppliers wary of slackening demand, rather than Riyadh cornering the physical market.
- Whilst Russia refrained from additional supply cuts, it did promise to cut its crude export by 500,000 b/d, however, the current pace of loadings is already 450,000 b/d lower than May.
- The only time when Saudi Arabia was producing 9 million b/d or less on a sustainable basis was in peak COVID period in early 2021 and during the Great financial crisis of 2008.
Market Movers
- Italy’s energy major ENI (BIT:ENI) intends to cut its exposure to crude oil markets in favour of natural gas by selling off some of its assets, aiming to generate at least $1.1 billion from divestments in 2023-2026.
- Chevron (NYSE:CVX) is offering acreage in New Mexico and Texas, covering a total of 32,035 net acres with an assumed value of some 100 million, as part of its US portfolio rebalancing.
- US developer Venture Global LNG asked federal regulators if it can increase the staffing of workers to its Plaquemines LNG project, hoping 24/7 construction would allow it to commission Phase 1 in late 2024.
Tuesday, June 27, 2023
Saudi Arabia’s extension of production cuts should, under normal circumstances, be a major upside for oil prices, triggering an immediate run in Brent or WTI. None of that happened on Monday when Riyadh announced its decision. With the eurozone’s PMI index falling to 43.4, its lowest since early Covid days, Japan plunging into contraction again and South Korea recording its twelfth consecutive manufacturing contraction, macroeconomic fears got the upper hand, again.
Saudi Arabia Extends 1 Million B/d Cut into August. Saudi Arabia announced it would extend its 1 million b/d unilateral production cut for July into August, saying it is doing so „with the aim of supporting the stability and balance of oil markets”.
Backing Saudi, Russia Vows to Curb Exports. Merely a couple of minutes after Saudi Arabia’s extension of its production cut, Russia’s deputy prime minister Alexander Novak pledged to cut oil exports by 500,000 b/d in August, without providing a baseline from which it would be cut.
EU Misses Target on Power Reform Again. European Union members once again failed to reach an agreement on the bloc’s electricity reform, arguing over the extent of state aid for new power plants, with Germany and its allies aiming to limit France’s help to its future nuclear plants.
Hedge Funds Terminate Long Oil Positions. Hedge funds and other market speculators have sold the equivalent of 64 million barrels in WTI and ICE Brent futures and options contracts, with net positioning in crude oil falling to its lowest level since CFTC started to track this data back in 2013.
Shell’s Renewable Tzar Leaves Amid Policy U-Turn. Thomas Brostrom, the head of Shell’s (LON:SHEL) renewable branch, is leaving the company after a less than 2-year stint as the company scaled back its energy transition plans to reap the rewards of high fossil fuel prices.
China Fires Up Xinjiang’s Solar Hydrogen Potential. Chinese state-owned oil major Sinopec (SHA:600028) launched its first-ever green hydrogen plant in the western region of Xinjiang, aiming to produce 20,000 metric tonnes per year using solar power and to supply it to the Tahe refinery.
DoE Mulls Further SPR Replenishment. After Macquarie Commodities landed half of the 3-million-barrel September SPR purchase deal, the US Department of Energy hinted at further buying in October-November saying they maintain a 13-million-barrel SPR refill target.
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Related: Iran’s Growing Oil Production: A New Threat To OPEC’s Market Grip
Indian Refineries Overdose on Russian Oil. Rising for the 10th consecutive month, India’s imports of Russian crude oil hit an all-time high of 2.2 million b/d in June according to Kpler data, more than the country’s traditional suppliers Iraq and Saudi Arabia combined.
Air Quality Woes Hinder Chinese Steel Industry. Chinese iron ore futures have slipped to $106-107 per metric tonne after the city authorities of Tangshan, a key steelmaking hub in the country, ordered steel mills to cut production to improve air quality amidst heavy („orange”) pollution alerts.
China’s Coal Imports Impact Local Producers. China’s domestic coal suppliers are lobbying the government to slow down coal imports, up 90% year-on-year as some 182 million tonnes were imported in January-May 2023, arguing their profits have fallen 20% since the beginning of the year.
Mexico Starts Sending Oil to New Refinery. Mexico’s 340,000 b/d Olmeca refinery, built in the hometown of President Manuel Lopez Obrador in Dos Bocas, began loading crude for oil processing this week, however, industry sources only expect it to begin commercial operations in early 2024.
UN Is At Sea with Deep-Sea Mining. The UN’s International Seabed Authority (ISA) is poised to receive applications from private companies on floor exploration and mining activities in international waters after the two-year application period stipulated for governments ends on July 9.
Rare Lizard Might Ramp Up Drillers’ Frac Sand Costs. The US Fish and Wildlife Service announced it intends to protect the dunes sagebrush lizard under the Endangered Species Act, jeopardizing the operations of more than a dozen frac sand mines across Texas and southeastern New Mexico.
By Tom Kool for Oilprice.com
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