Russia’s invasion of Ukraine sent an already bullish oil market into overdrive, with both WTI and Brent breaking the $100 mark on Thursday morning.
OPEC claims to have spare capacity but is refusing to increase production growth at the moment as they believe the situation is “complicated and volatile.”
This statement supports statements from OPEC members earlier in the week who emphasized that they are focused on the long-term health of oil markets.
The crisis in Ukraine has dominated the media space for weeks now, with a special focus on potential energy supply disruptions should the invasion scenario the U.S. and Western Europe have been talking about since October materialize.
As it became clear early on Thursday morning, the fears that Russia could attack Ukraine were not unfounded.
Vladimir Putin’s order to deploy troops in the two eastern breakaway regions of Lugansk and Donetsk had already pushed Brent and West Texas Intermediate higher. On Thursday morning after reports of Russia’s attack, all benchmarks rose again, with Brent reaching more than $104 per barrel and WTI briefly breaking $100.
Now, more than ever, there are concerns about oil and gas supply from one of the world’s top producers.
Some have compared the situation with the 1973 Yom Kippur war between Israel and a coalition of Arab states. The war led to the Arab oil embargo for the Western world, which led to a sharp and shockingly high rise in prices compared to which this week’s $104 for Brentcouldn’t even compare.
In 1973, oil prices practically quadrupled over a few months. This week, they continued on an already established path— a path that, until today, had little to do with Russia.
A Reuters columnist, George Hay, wrote in a column earlier this week that demand for oil was so strong that prices would have to go further still to start affecting demand in any significant way.
Just how high prices would need to go we have yet to see. But he also wrote that this was unlikely to happen because OPEC+ would step in to help.
But an OPEC+ rescue is now looking less likely.
“The oil market is artificially tight. OPEC+ is pumping around 3 million barrels a day less than it could, and most of that spare capacity is held by Saudi Arabia and the United Arab Emirates,” Hay wrote.
“Both would probably respond to any plea by U.S. President Joe Biden to increase supply to ward off destabilising price spikes”, he said.
It was an interesting supposition in light of what OPEC, led by Saudi Arabia and with the UAE its staunch ally, has been doing over the past year. There have been numerous calls from President Biden for OPEC to open the taps.
These calls were followed by demands and threats to open the U.S. strategic petroleum reserve if OPEC refused to play ball. OPEC refused to play ball. Biden opened the SPR. Prices did not fall consistently. Why should it be any different now?
The latest signs from OPEC are not exactly encouraging.
Officials in several OPEC producers said on Thursday that there was no immediate need to produce more—even though Brent has surpassed the $100 mark, calling the situation “complicated and volatile.”
Both the energy minister of Saudi Arabia and his counterpart from the United Arab Emirates spoke recently to the media, signaling they had no intention to change anything about the OPEC+ pact and the schedule of adding 400,000 bpd to the monthly total production.
“Caution, a word that I know some people hate me for, but… I will continue being cautious and (mindful of) the need to retain flexibility in our strategy and adopt a long-term perspective,” Saudi Arabia’s Prince Abdulaziz bin Salmansaid earlier this week.
“I think our plan has been working, and I don’t believe that the market is hugely under-supplied currently. It’s the other factors that are outside our hands which are impacting the market,” his Emirati colleague Suhail al Mazrouei said.
Two other OPEC members also made recent comments on oil supply and the chances of additional production boosts, and these comments were along the same lines.
“The market will have more and more oil,” Iraqi oil minister Ihsan Abdul Jabbar Ismail toldBloomberg also this week. “We will not create any growth to the commercial storage. We will secure all the demand by making the required supply.
“We won’t do anything extraordinary at this time because we are expecting a lot of production” from non-OPEC producers, Nigeria’s oil minister, Timipre Silva said. There is “no need at all to bring on more barrels than the current plan.”
Whatever happens in Ukraine, it does not seem to be sitting on the top of OPEC ministers’ minds. To them, the global oil market is not in a deficit, and they are doing fine with output additions. This stance is in contrast with the stance of consuming countries—and the International Energy Agency—which makes for truly interesting times in the oil world.
By: Irina Slav
Slav reports for Oilprice.com
NB, Konexa Boost Renewable Energy
Nigerian Breweries (NB) Plc has signed a power purchase agreement with Konexa, an integrated energy development and investment platform to deliver 100 per cent renewable energy that will cover the electricity needs of its two breweries – Kakuri and Kudenda, in Kaduna State.
Under the 10-year agreement, Nigerian Breweries has outsourced the power supply for its breweries, converting from fossil fuels into a full-service renewable energy solution, using hydro-power sources.
This step is in line with its business strategy and ‘Brew a Better World’ sustainability agenda. The project is co-funded by Climate Fund Managers and Konexa.
The Managing Director, NB, Mr. Hans Essaadi, described the agreement as another significant step in the company’s journey in its quest to operating a carbon-neutral plant in future, adding that its partnership with Konexa will reduce its energy costs and cost of production.
“By 2030, we want to become a standard reference point in Nigeria when it comes to sustainability and efficient use of resources. Under our ‘Brew a Better World’ agenda, we are taking several bold steps to become a carbon-neutral company”, Hans explained.
The Commercial Director at Konexa, Joel Abrams, explained that the agreement was part of Konexa’s commitment to supporting industry, national governments and utilities to achieve clean and reliable 24-hour-a-day power.
He added that the partnership anchors Konexa’s confidence in the power sector and will bring long-term investment and world-class operations to support the sector’s sustainability by improving reliability, quality of service, and job creation.
“We are very pleased to be part of the energy transition that Nigerian Breweries Plc. is leading. This agreement is particularly significant in the current context of increasing energy costs from traditional fossil fuels.
“This type of solution can apply to many businesses across Nigeria, allowing them to obtain cost-effective power from a reliable partner while focusing on their core business,” he stated.
The Chief Investment Officer, Climate Fund Managers Tarun Brahma, n his part, said, “we are proud to support Konexa and look forward to actively supporting Nigerian Breweries Plc. as they demonstrate leadership in driving the decarbonisation of their operations in Nigeria”.
Last year, NB Plc inaugurated its 663.6 KWP solar power plant at its Ibadan brewery, which supplies 1GWh yearly to the brewery while reducing its carbon emissions by 10,000 tonnes over a 15-year lifespan of the plant.
NLNG Bags FIRS’ Most Supportive Taxpayer Award
The Nigeria Liquified Natural Gas (NLNG) Limited has been recognised by the Federal Inland Revenue Service (FIRS) as its most supportive taxpayer.
The recognition was conveyed in a statement by the Executive Chairman of FIRS, Mr. Muhammad Nami, in which he commended the 20 top-performing taxpayers whose compliances to tax obligations helped the service surpass its N6 trillion tax collection target in 2021.
Nami said FIRS was particularly pleased that the feat was achieved, and it was possible to provide the government with the necessary funds to meet its social contracts with the citizens despite the very harsh global economic conditions imposed by the lingering COVID-19 pandemic.
The country’s top-performing taxpayers were scheduled to be unveiled, recognised and awarded by President Muhammadu Buhari at an exclusive dinner during the FIRS 2022 National Tax Week, but the event was cancelled due to the unfortunate attack on the Kaduna-Abuja railway on the 28th of March 2022.
Reacting, the Managing Director and Chief Executive Officer of Nigeria LNG Limited, Dr. Philip Mshelbila, said the award was coming at an auspicious time when the company was celebrating its 33rd Incorporation Anniversary and taking stock of its programmes and their impact on the lives of Nigerians and the country.
Mshelbila reiterated NLNG’s commitment to its vision of “helping to build a better Nigeria” and stated further that “the Company still has more to give by making gas count for the country and representing Nigeria in the league of top gas producers in the world.”
He affirmed the Company’s commitment to fulfilling its tax obligations in line with its vision of being a globally competitive LNG company helping to build a better Nigeria; and also thanked the board, management and staff of NLNG for their continued support.
‘Oil Market Fears Recession More Than Tight Fuel Inventories’
The oil market saw an other volatile week as bullish and bearish catalysts collided.
There is a growing fear that a potential recession could weigh heavily on oil demand.
Overall, the market appeared more concerned about the rising odds of a recession rather than falling U.S. fuel inventories to multi-year lows.
The oil market wrapped up another volatile week of hectic trading, swinging up and down in a $5 a barrel range as it was pulled between bullish and bearish catalysts in both directions every day.
Both benchmarks hit an eight-week high early on Tuesday, only to pull back later in the day and join on Wednesday the sell-off on Wall Street triggered by renewed investor concerns about a possible recession as top retailers flagged soaring costs and supply chain bottlenecks in their quarterly earnings reports.
In the week to May 20, oil market participants paid more attention to “recession fear” headlines than to the weekly U.S. petroleum status report, which showed another draw in gasoline inventories and higher implied domestic demand, which, despite record-high gasoline prices in America, is only set to rise further as we enter the summer driving season.
“The market is reacting to all sorts of different headlines hour to hour, and the movement in oil markets on a day-by-day basis getting even more exaggerated,” Andrew Lipow, president of Lipow Oil Associates in Houston, told Reuterson Thursday, when oil settled higher after the U.S. dollar weakened, following a plunge in crude prices in earlier trading on the same day.
Overall, the market appeared more concerned about the rising odds of a recession rather than falling U.S. fuel inventories to multi-year low levels for this time of the year.
Investors and speculators pulled back from oil, with crude being a riskier asset, as concerns about a more pronounced global economic slowdown—and even a recession—intensified and dampened risk appetite.
“The possible easing of U.S. sanctions against Venezuela could be considered another bearish factor, coming in addition to the Hungarian veto on the EU’s plan to ban Russian oil,” Sebastien Bischeri, Oil & Gas Trading Strategist at Sunshine Profits, wrote inInvesting.com.
The EU is still struggling to persuade Hungary to accept an EU embargo on Russian oil imports. Adding to bearish factors were fresh COVID outbreaks in China, where Shanghai is tentatively reopening, but infections are rising in the Beijing area.
However, while the market is focused on gloomier economic outlooks, it has ignored—at least this past week—the critically low U.S. fuel inventories.
Not that oil demand has soared so much. It’sthe capacity for supply, globally and in the U.S, that is now a few million barrels per day lower than it was before the pandemic.
Rising demand since economies reopened and people returned to travel, combined with lower refining capacity and very tight distillate markets have drawn down U.S. product inventories to below seasonal averages and at multi-year lows, with record-low inventories reported on the East Coast.
Total motor gasoline inventories decreased by 4.8 million barrels in the week ending May 13, and are about 8% below the five-year average for this time of year, the EIA said in its latest weekly inventory report on May 18. Implied gasoline demand, measured as products supplied, rose, despite record-high prices across the United States.
Gasoline inventories in the U.S. are at their lowest levels for this time of the year since 2014, with stocks on the East Coast even tighter, at their lowest since 2011 for this time of the year.
“While refiners have some room to increase runs (utilization rates increased by 1.8 percentage points to 91.8% over the week), gasoline demand should increase as we move into driving season, which suggests that we will see further tightness in the US gasoline market.
In this case, we are likely to see further pressure on the US administration to try rein in gasoline prices,” ING strategists Warren Patterson and Wenyu Yao wrote on Thursday.
According to Bjarne Schieldrop, Chief analyst, Commodities, at SEB:
”The global refining system is severely stretched following reductions in capacities in 2020/21, reviving oil product demand along with re-openings with Russia/Ukraine issues on top. We are now heading into summer driving season with much higher gasoline demand with a start-out of very low inventories.”
Concerns about economic growth, and consequently, demand for fuels, are yet to be reflected in actual data, Saxo Bank said on Thursday.
“On the ground, however, this worry has yet to be reflected with inventories of crude oil and gasoline still falling while US implied gasoline demand, despite record prices, remains robust.
“Meanwhile, in China the easing of lockdowns is not going well with fresh outbreaks slowing the pace towards normalisation. Until then, the market is likely to focus on the general level of risk appetite, which is currently challenged,” Saxo Bank’s strategy team noted.
By: Tsvetana Paraskova
Paraskova writes for Oilprice .com.
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