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Oil Prices Fall Back But Bullish Sentiment Remains

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Chart of the Week

- The price spread between spot Brent assessments such as Dated Brent and the exchange-traded ICE Brent rose to an all-time high of $5 per barrel amid ongoing geopolitical concerns. 

- ICE Brent backwardation, too, is mirroring the unprecedented tightness in oil markets right now, with the M1-M3 spread between the March and May ’22 contracts trading as wide as $4 per barrel. 

- While refiners would naturally run down year-end stocks, the current levels of backwardation make it impossible to replenish inventories as storing inevitably triggers losses.   

- As Russian benchmark Urals sank to its weakest level in more than a year on sanctions fears and weak desulphurization margins, premiums for North Sea grades Ekofisk and Forties soared. 

Market Movers

- Global trader Glencore (LON:GLEN) will set aside $1.5 billion for investigations into bribery and market manipulation which it expects to resolve over the course of this year. 

- US oil firm ConocoPhillips (NYSE:COP) is reportedly considering a sale of its Permian Basin acreage located primarily in the Delaware region, worth more than $1 billion, as it seeks to trim down its assets after it had bought out Shell’s US assets. 

- UK-based major Shell (NYSE:RDS.A) is preparing to launch the sale of its gas assets in the Southern North Sea, some of them under development since the 1960s, expecting to fetch $1 billion from the transaction. 

Tuesday, February 15, 2022

Oil prices very nearly hit the $100 per barrel threshold on Monday as supply disruption fears spiked due to reports of Russia potentially invading Ukraine. At its peak, the backwardation in the futures market was so steep that the Brent M1-M2 spread surpassed $2 per barrel - the last time markets saw such a discrepancy between spot assessments and forwards was back in 1993. The end of Russia’s military drill next to the Ukrainian border eased concerns somewhat, nudging Brent back into the lower 90s. Yet the market is still struggling to find a good bearish story to believe in - OECD inventories remain unprecedentedly tight and OPEC+ seems reluctant to ramp up production, just as the windfall revenues started to flow in. 

White House Mulls Gasoline Tax Pause. According to media reports, the White House is considering a temporary halt on federal taxes on gasoline - currently amounting to 18.4 cents per gallon - to help offset rising fuel prices at the pump.

India Faces Another Coal Shortage. With coal remaining the best performing hydrocarbon of 2022 so far, its prices might see another upswing as Indian smelters, textile mills, and fertilizer makers have all complained about a burning shortage of coal as power generators use the bulk of the supplies. 

Total’s $27 Billion Iraq Deal Stalled. The largest Iraqi energy deal of the past decade, TotalEnergies’ (NYSE:TTE) four major projects in oil, gas, and renewables totaling $27 billion, has reportedly stalled as the prolonged approval process across Iraqi ministries led to Baghdad reconsidering the deal’s terms. 

EU Is Putting Gazprom Under Magnifying Glass. The European Union’s antitrust regulators are expected to ramp up pressure on Russia’s Gazprom (MCX:GAZP) to see if the gas giant withheld extra gas supplies to send regional gas prices spiking. 

China Increases Efficiency Targets. The Chinese authorities have raised the benchmark levels of energy efficiency for its most energy-intensive industries, tightening expectations for aluminum, copper, and zinc smelting plants as their power consumption took up almost 9% of the country’s total. 

Exxon Starts Up Second Guyana Project. US oil major ExxonMobil (NYSE:XOM) started production at the second phase of the Liza deepwater field in offshore Guyana, bringing the country’s total production capacity to 340,000 b/d.

EIA Expects Permian Record in March. The US Energy Information Administration expects that oil production in the Permian Basin will rise 70,000 b/d to a record level of 5.2 million b/d in March, despite well productivity falling to its lowest since August 2020.  

Alberta Wants to Tighten Oil Sands Emissions. The government of Alberta is working to tighten emission standards for oil sands mines, the most carbon-emitting upstream projects globally, as Canadian producers can up until now choose the benchmarking of their emissions. 

Corn-based Ethanol Worse for Climate than Gasoline, Study Says. A recent US academic study found corn-based ethanol, a key fuel blending component, to be 24% more carbon-intensive than gasoline due to emissions coming from land-use changes to crow corn, provoking the ire of the ethanol trade lobby. 

France Suffers Another Nuclear Setback. With France’s state-owned power group EDF (EDF) having arguably the worst winter this century so far, Paris has seen another nuclear – Bugey 3 – go offline due to an overhearing connection, bringing the total capacity off to 15 GW, a quarter of the country’s output. 

Exxon Might be Late to the Brazil Party. Despite 4 billion spent on drilling rights, allowing US oil major ExxonMobil (NYSE:XOM) to become the second-largest offshore acreage holder in Brazil, the company is yet to report a commercial oil discovery whilst it still sees the country as one of its highest-quality growth areas.

Platts Wants WTI Midland in Brent Valuations. S&P Global Platts indicated it would seek to add WTI Midland to its assessment of oil benchmark Dated Brent, converted into a virtual fob North Sea basis to keep the global benchmark in line with other BFOET grades, though the oil market is still split on the necessity to include non-North Sea crudes. 

Metals Soar on Russia-Ukraine Fears. Alongside crude prices, aluminum and nickel prices rose towards multi-year highs amidst concerns that a potential conflict could reduce Russian supply and aggravate existing shortages, with the former trending around $3,340 per metric tonne, close to all-time highs.

By Josh Owens for Oilprice.com 

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