FIS: Crude Oil Market Overview: Crude falls as Keystone outage continues
Since the start of November, Brent has fallen by 18% and WTI by 17%, showing a bearish sentiment in the market. Brent saw a high of $82/bbl on 5 December and lows of $76/bbl on 8-9 December.
Despite the slight increase yesterday, crude oil prices have continued to decline, which will not please OPEC+ or Russia. Last week started at the $82-85/bbl levels after OPEC+ members led by Saudi Arabia and Russia decided to maintain the controversial cut of 2 million bbls from the market in 2023 to prevent the price from falling, despite the risk of high inflation and a global recession.
After highs $88/bbl, Brent continued the decline into Tuesday 7 December following the strong US service data, which raised prospects for moves by the Federal Reserve. A report from the Institute for Supply Management (ISM) showed that US service sector activity unexpectedly grew at an accelerated rate in November. The data also reinforced believes among investors that the Fed will maintain aggressive interest rate hikes for longer, and was further supporting the dollar index in the session. And, of course, a stronger dollar makes oil denominated in the US currency more expensive for buyers of other currencies.
We started to see the effects of the price cap on Russian crude by the EU take effect in the middle of last week, with a large traffic jam of oil tankers off Turkey a local authorities demanded insurers to prove that ships were legally insured. As tightening EU sanctions have raised supply fears, the US and UK announced a new partnership to stabilise energy markets and reduce dependency on Russia.
Later in the week, data confirmed our expectations as Kpler, a commodity analytics firm, showed that Russian seaborne exports had fallen by 500,000 b/d - a 16% decline in average levels from November. Tanker Trackers, a sea vessel tracking site, reported a fall in Russian crude exports by nearly 50%. Data also added to what we already know Russia will be sending more of their exports to the East. Gazprom will raise natural gas flows to China via the Power of Siberia pipeline to add to the long list of examples of supply migration.
We finished the week off with possible indications that supply may be eased as we heard rumours of Moscow managing to find enough shipping insurance to meet its needs in the East, with reports of Chinese refineries keen on buying Russian ESPO crude. China and Saudi Arabia boosted their relationship as Xi Jinping visited and agreed to expand their oil trade partnership. This is expected as China is reported to export record fuel volumes this month to offset weak domestic consumption. What this would mean for Russian supply is still being determined. We do know Putin confirmed that he would be willing to cut oil production in response to the West’s “stupid” price cap. He further stated that countries that abide by it will not be allowed to buy Russian oil.
As the massive traffic jam in Turkey began to clear at the start of this week in Europe, there was an outage on the largest oil pipeline from Canada to the US. It was reported that it could cut crude oil supplies to two oil refineries and affect inventories, with the Keystone pipeline ferrying about 600,000 b/d. Ironically at the same time, China eased Covid-19 restrictions in a boost to the demand outlook. It most certainly feels like déjà vu with China. Regardless, the supply and demand outlook could get more interesting as Libya has invited global oil majors to resume activities in the country. According to oil minister Mohamed Oun, Libya is currently producing around 1.2 million b/d, Reuters reported. "We hope to return to 2010 levels, which was 1.6 million bpd, within two or three years," he added. The lift force majeure on oil and gas exploration announced last week would likely encourage oil companies to return.
Written and edited by Mopani Mkandawire
(https://freightinvestorservices.com/fis-live/).
