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Michael Kern

Michael Kern is a newswriter and editor at Safehaven.com and Oilprice.com, 

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Geopolitical Risks Push Oil Prices Higher

geopolitics

Oil prices are being pushed higher by renewed geopolitical risk after the UK and the U.S. launched an attack on Houthi positions in Yemen. Brent temporarily climbed above $80 before falling back slightly.

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Friday, January 12, 2024

The escalation of tensions in the Red Sea, culminating in the largest US/UK attack on Houthi positions since the start of Operation Prosperity Guardian, has prompted multiple tankers to divert from the Suez Canal and Danish shipping firm Torm joined the ranks of European companies avoiding Red Sea transits. For the first time in 2024, ICE Brent futures have traded above the $80 per barrel mark. As the shipping industry is tilting towards a blanket ban on all transits through the Bab el Mandeb Strait, the upside in oil (and even more so for gas) is far from over. 

US and UK Launch Attack on Houthi Positions. The militaries of the United States and the United Kingdom carried out joint strikes against Houthi militant targets in Yemen, targeting radars as well as missile and drone-launching sites, prompting Saudi Arabia to call for restraint in the Red Sea area.

Iran Seizes Oil Tanker In Oman’s Waters. Iran seized a Marshall Islands-flagged oil tanker carrying Iraqi crude in the Gulf of Oman, in retribution for the US seizure of the same tanker a year ago when it was (then called Suez Rajan) carrying 1 million barrels of Iranian crude, adding to geopolitical risks in oil.  

Surging Freight Shuts US Arb to Asia. The cost of chartering a VLCC from the United States to Asia jumped to more than $10 million this week, up 25% week-on-week, making WTI delivered to China 4 per barrel more expensive than Dubai, shutting the eastbound arbitrage for US light grades for now.  

Chesapeake-Southwestern Merger Turns Official. Ending months of intense speculation, US gas producer Chesapeake Energy (NASDAQ:CHK) agreed to buy its shale peers Southwestern Energy (NYSE:SWN) in an all-stock transaction valued at $7.4 billion, making it the largest American gas producer.

Libya Protestors Warn of Larger Impact. Turmoil in Libya might proliferate beyond the shut-in El Sharara field as protesters across the North African country have threatened to shut down two oil and gas facilities in Mellitah near the capital city of Tripoli, issuing a 72-hour ultimatum that ends Friday.  

ExxonMobil Eyes Algeria Expansion. US oil major ExxonMobil (NYSE:XOM) has been in advanced talks with Algeria’s national oil company Sonatrach to enter into new oil and gas exploration projects in the country, following in the footsteps of Occidental (NYSE:OXY) that so far was the only US firm there. 

Norway’s Gas Exports Hit Record in December. Norwegian exports of natural gas via pipelines to Europe hit an all-time high in December, reaching 11.1 bcm thanks to increased capacity at the country’s processing plants and rebounding strongly after the summer’s turnaround-heavy supply weakness.  

Canada’s Oil Sands Churn Out Record Volumes. In anticipation of the TMX pipeline starting up, oil producers ramped up Albertan output to a record high in November, surpassing the 4 million b/d mark for the first time in history and up 336,000 b/d on the month, also depressing WCS prices to -$20 per barrel below WTI.

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Following Lithium Slump, Market Turns to Hedging. The recent price slump in lithium has aided exchange-traded futures contracts of the transition metal as the CME lithium futures saw volumes traded skyrocket to 20,307 metric tonnes in 2023 from a mere 468 metric tonnes in 2022. 

French Major Wants More of Namibia’s Oil. France’s oil champion TotalEnergies (NYSE:TTE) has agreed to buy the stakes of UK-based explorer Impact Oil in Namibia’s blocks 2913B and 2912, 10.5% and 9.39% respectively, seeking to maximize its ownership of the multi-billion-barrel Venus discovery in the latter block.  

LME Stocks Get Swamped by Russian Aluminium. The share of available aluminum stocks of Russian origin in London Metal Exchange-approved warehouses increased to 90.4% in December, up 12 percentage points from November, a problem for LME after the UK’s December 15 sanctions.  

Civil War Jeopardizes Ecuador’s Oil Industry. As gang violence took over the streets of Ecuador, the country’s national oil producer Petroecuador boosted security measures around its production sites as the previous CEO Eduardo Miranda resigned, keeping production unchanged at 490,000 b/d. 

Mongolia Eyes China’s Coal Market. Having doubled in 2023, China’s imports of Mongolian coking coal are set to rise further thanks to an expanding railroad network connecting the Asian country to its southern neighbor, with analysts expecting flows to add 10% in 2024 from the current annual tally of 50 million tonnes.

By Michael Kern for Oilprice.com

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