Oil and Gas Prices to remain high at least for another quarter
In the next couple of weeks, the prices of US gas are expected to increase by 5- 10%.
This will be mostly driven by an increase in demand for cooling, with heat watches across multiple US states (see the Weather section). The US EIA expects natural gas consumption in the US electric power sector will average 0.9Bln cubic feet per day (BCF/D) more in 2022 than in 2021.
The increase in activity in US shale has been outpaced by this demand.
Some experts predict that global crude oil prices are likely to remain above $115 for the rest of the year. The upward lever here is that increased production by the OPEC+ will not be able to fill the hole created by the Russian oil embargo.
Meanwhile, the US EIA expects quarterly average Brent price expected to peak at $112 in 2Q decreasing to $105 in Q4.
US inflation unexpectedly accelerated to a fresh 40-year high of 8.6% last month, raising the likelihood of more aggressive rate hikes from the Federal Reserve. This will provide a downward lever.
Meanwhile, major Chinese cities are still battling against rising virus cases as the world’s biggest crude importer navigates a bumpy return from lockdowns. Moreover, the Chinese economy is still muted, also providing a downward lever.
Goldman Sachs reiterated on Friday that energy prices need to rally further before achieving the demand destruction required for market rebalancing. Analysts in general are seeing demand destruction kicking in only at $150-$160/barrel.
Prices were under heavy pressure earlier this week after an explosion at the Freeport oil and gas export terminal in Texas is set to leave fuel supplies stranded in the domestic market despite soaring international demand. Freeport receives about 2 billion cubic feet of gas per day or roughly 16% of US LNG export capacity.
Read more at: Gas prices to rise 5-10%
In the next couple of weeks, the prices of gas are expected to increase by 5-10%. Crude Oil Prices are likely to remain above $115 for the rest of the year.#oil #gasprices #OPEC #uae #ksa #saudiarabia #china #usa #COVID19 #russia #UkraineWar https://t.co/WwQ29arufg— باسم البيطار | Basem Bitar (@bitarbasem) June 8, 2022
Geopolitics and War
Australian Prime Minister asks for tighter tiers with SE Asian countries
The recently elected Australian Prime Minister, Anthony Albanese, asked for tighter ties with Indonesia and other South-East Asian countries, given the ominous Chinese threat to the Indo-Pacific region.
#AnthonyAlbanese has declared he wants to #strengthen the #Australia -#Indonesia #relationship while deepening ties with #southeast #Asian #nations amid #escalating #tensions prompted by #China’s growing assertiveness in the #IndoPacific.https://t.co/rqwYufs9BK— Salina Reddy (@ReddySalina) June 6, 2022
Has Biden lost the Gulf?
Has Biden lost the Gulf?
Has Russia succeeded in pulling the Arab countries out of the US grasp?
Multiple indicators are being highlighted -
Joe Biden’s intended Middle East tour has been postponed until July.
No dates have yet been set, and it could be delayed again or even cancelled as Ukraine gains priority. So why is this trip in doubt while the US president’s other travels — to East Asia, New Zealand, and Europe — are proceeding on schedule?
Meanwhile, Russian Foreign Minister Sergei Lavrov stepped into the breach to deliver a pre-emptive diplomatic strike. His high-profile visit to the region, and his meeting with Gulf Cooperation Council (GCC) ministers which upheld existing energy cooperation agreements, might have sabotaged Biden’s tour before it even began, and dealt a major blow to Washington’s efforts to repair its rapidly deteriorating relationships in the region.
Biden further muddled the waters by commenting that it was “premature” to consider a meeting between him and Bin-Salman. It was left to the White House spokesman to explain more clearly that Biden hasn’t changed his views on human rights in Saudi Arabia or bin Salman's role in the murder and dismemberment of journalist Jamal Khashoggi, which had turned him into a “pariah”.
In the latest meeting, OPEC agreed to an oil production increase of just 200,000 barrels per day, ignoring US pleas for a hike of at least 1,000,000 b/d.
Meanwhile, several ultra-rich Arabs are selling off their assets in the US (as mentioned in a previous edition).
The ball now seems squarely in Biden's court to make the next move.
Is the US-Middle East relationship truly worsening?
Is the US going to focus on boosting the relationship again?
Key Libyan oil ports closed due to protests
Protesters force key Libyan Sidra and Ras Lanuf oil ports to close.
The tanker KIRITI Bastion is currently being mobilized in Ras Lanuf to be the last, and another tanker, Estrella, will be prevented from entering Sidra to load 600,000 barrels of oil.
There is a closure threat to the third port, Hariga, as well.
Read more at: Libya oil shutdown expands with threat to close new port
Summit of the Americas held without key representation
The ninth Summit of the Americas was held in Los Angeles without key Latin American and Caribbean countries. Cuba, Venezuela, and Nicaragua were not invited and Mexico dropped out.
This has attracted a lot of criticism, especially when the US has given its blessing to get Venezuelan oil into the EU.
The US to allow Venezuelan oil to be shipped to Europe
Eni SpA and Repsol SA, which are Italian and Spanish respectively, could ship Venezuelan oil to Europe as early as next month after the Biden administration authorized the plan last month. Oil-for-debt swaps will be resumed, these were halted two years ago when Washington stepped up sanctions on Venezuela.
This is to fill the gap created by the Russian oil ban.
As they say, politics makes strange bedfellows.
#USA will reportedly resume allowing Venezuelan oil to flow to Europe. Eni SpA and Repsol SA, which are Italian and Spanish respectively, could ship Venezuelan oil to Europe as early as next month after the Biden administration authorized the plan last month" #oott #markets https://t.co/miGHH1cd32— Gamemaker (@DavidSSKCapital) June 6, 2022
Heat watches in the US cover over 42m people
Forty-two million people are under heat watches and warnings in the US Southwest into the weekend as a heat dome strengthens over the region, with temperatures soaring to hazardous levels from Texas to Arizona and northwestward into California's Central Valley.
Read more at: Heat wave threatens nearly 40 million across Southwest
42 mln #people are under #heat watches and #warnings in the #Southwest into the #weekend as a heat dome #strengthens over the #region,with #temperatures soaring to #hazardouslevels from #Texas to #Arizona and northwestward into #California Central Valleyhttps://t.co/MbSTY1pJiJ— Salina Reddy (@ReddySalina) June 10, 2022
China's CNPC bets on hydrogen and clean energy
China’s biggest oil and gas producer wants to shift half of its output to hydrogen, geothermal energy, and clean power by 2050 amid the country’s move toward net zero emissions.
Supply & Demand
US EIA expects refinery utilization to stay above 94%
US EIA Expects Refinery Utilisation To Average 96% In June, 94% In July, And 96% In August.
US road fuel prices are rising even faster than crude benchmarks, touching the $5 mark over the weekend, resulting in an increasing premium first for diesel and now gasoline, as refineries prove unable to keep pace with demand from freight haulers and private motorists.
Meanwhile, the Chevron CEO commented that the U.S. may never build a new refinery.
Freight, Shipping & Logistics
Freeport LNG Terminal fire will further worsen the EU gas situation
Freeport LNG, operator of one of the largest U.S. export plants producing liquefied natural gas (LNG), will shut for at least three weeks following an explosion at its Texas Gulf Coast facility, raising the risk of gas shortages in Europe.
Freeport #LNG restarts Train 1 after October compressor trip, fire at US export facility | #natgas— S&P Global Commodity Insights LNG (@SPGCILNG) November 9, 2020
* Cause of mishap continues to be analyzed
* Unit at Kinder's Elba still offline from May fire@HarryRWeber story: https://t.co/e8JCJ8JCz3 pic.twitter.com/zHXJ3qmMNj
#EconWatch: Due to a fire at the US Freeport LNG facility, EU natural gas prices have soared to €85/MWh from a €77 3-month low. The terminal will close for 3+ weeks, limiting U.S. gas exports & increasing shortages. So don’t expect prices to abate anytime soon. EU's in trouble. pic.twitter.com/iQW7vGbsWM— Steve Hanke (@steve_hanke) June 12, 2022
Iranian "Ghost Armadas" helping Russia circumvent the sanctions
We had discussed the role of "ghost armadas" in a previous edition. The analysis of Refinitiv shipping data by the anti-corruption group Global Witness shows that ships controlled by Greek, Cypriot and Maltese interests have rapidly increased the amount of Russian oil they have been transporting each month since the war began.
At the start of the war, ships linked to these countries carried a little over a third of the oil exports from Russian ports. By May, that figure had jumped to just over half.
The US based UANI (United Against a Nuclear Iran) claims to have detected five Iranian ships which are part of this "ghost armada" transporting Russian oil to China and India.
#Iranian ships seen carrying #Russian crude out of the #BlackSea.— 🇺🇸🏳️🌈Gays Love President Trump #ProLife (@GLPT01) June 6, 2022
Researchers from #UnitedAgainstNuclearIran (UANI) organisation, claim to have identified at least 5 of Iran’s so-called ghost armada transporting oil from Russia to China & Indiahttps://t.co/WsckdNVtWN
The biggest beneficiary of high gas prices is the coal industry
The biggest beneficiary of 14-year highs in natural gas prices is the coal industry. Most coal companies currently trade at 1-2x ebitda with unlevered balance sheets and free cash flow yields approaching 100%.
There is also a global coal shortage going on in high coal-consuming countries such as India. (see previous week's scan for more details).
The biggest beneficiary of 14 year highs in natural gas prices is the coal industry. Most coal companies currently trade at 1-2x ebitda with unlevered balance sheets and free cash flow yields approaching 100%. The Biden-Fink energy crisis is likely to increase coal demand. https://t.co/ugsOZyvwv4— JC Oviedo (@JCOviedo6) June 7, 2022
In Other News
Iran and Oman divide the Hengam gas field in the Persian Gulf
Iran and Oman agreed to divide the Hengam gas field in the Persian Gulf on an 80:20 formula as part of a recent contract signed between the two countries to jointly develop the field, says an industry source.
Malaysia palm group warns of losses due to 'severe' labor crunch
Malaysia palm group warns of losses ahead from 'severe' labor crunch of about 120,000 workers.