Demand Concerns Dominate Oil Markets Despite OPEC+ Cuts

Macroeconomic factors continue to weigh on oil prices this week, despite the insistence of OPEC+ members that the group’s production cuts will tighten the oil market.In a deja vu moment for UN climate change conferences, participating nations are once again quarreling about whether to demand a full phase-out of fossil fuels, a claim Saudi Arabia already denounced as unrealistic.

– Climate change watchers have lashed out at the president of COP28 Sultan al-Jaber for saying the world cannot afford to go “back into caves” and it needs fossil energy for sustainable development, a claim they allege contradicts the UN’s own agenda.

– The COP28 summit has so far managed to formalize a pledge to triple global renewables capacity by the end of this decade, create a climate disaster fund and cut cooling-related emissions by at least 68% globally by 2050.

– More than 2,400 delegates at the COP28 summit were representing the oil, gas and coal industries, almost five times more than at the previous summit in Glasgow, triggering the ire of environmentalists that accuse them of lobbying against much-needed measures. 

Market Movers

– US midstream major Equitrans Midstream (NYSE:ETRN) is considering selling the entire business according to Bloomberg, aiming to capitalize on the upcoming start of the Mountain Valley pipeline.

– Colombia’s national oil firm Ecopetrol (NYSE:EC) will invest $5.8-6.7 billion and produce up to 730,000 boepd in 2024, in line with this year’s levels though focusing more on energy transition from now on.

– The ownership reconfiguration in Trinidad and Tobago’s Atlantic LNG facility will see BP’s (NYSE:BP) share in the project rise to 45%, equalling that of Shell (LON:SHEL) which previously used to own 54% of the asset.

Tuesday, December 05, 2023

Members of the OPEC+ group continue to insist that the 2024 production targets allocated last week will have an impact on oil markets, only to receive lukewarm acknowledgment from market participants. A rebound in US refining last week is more likely to trigger some bullish momentum than Saudi Arabia or Russia, with ICE Brent currently trading around $79 per barrel, although the continuous stream of weak macroeconomic data limits the upside for now. 

COP28 Mulls Fossil Fuel Phase Out. The second draft of the COP28 final agreement circulated amongst participants shows the summit is considering calling for an “orderly and just” phase-out of fossil fuels, though COP27’s call for phasing out “unabated” fossil fuels might prevail again. 

Lula Plays Down Brazil’s OPEC+ Role. Brazilian President Lula da Silva said the Latin American country will never be a full member of OPEC and only strives to have an observer’s role in the group, alleging that Brazil wants to influence the policy of the world’s largest oil producers. 

Red Sea Becomes Toxic for Israeli Commercial Tankers. In the most recent escalation of maritime trade risks, Houthi militias claimed to have attacked two commercial Israeli-linked vessels in the Red Sea, subsequently also attacking US warship USS Carney that responded to the vessels’ distress call.

Dozens of COP28 Participants Agree to Nuclear Pledge. 22 nations comprising the US, Canada, France, and even Japan have committed to triple the world’s nuclear capacity by 2050 compared to 2020 levels, acknowledging the “key role” of nuclear power in reaching net zero global emissions. 

US Vows to Speed Up SPR Replenishments. The US Department of Energy has announced that it would speed up the repurchase of 4 million barrels of oil to the Strategic Petroleum Reserve by February 2024 instead of the upcoming summer, lifting it from the current 351.6 MMbbls. 

India Starts Buying Venezuelan Oil Again. India’s largest refiner Reliance (BOM:500325) resumed purchases of Venezuelan crude after a four-year hiatus, taking in several VLCC cargoes from PDVSA for February delivery at between $7.50 and $8 per barrel below Dated Brent on a delivered basis. 

Japan Calls to Expand Strategic LNG Stocks. Japan’s power utility companies have called for an increase in strategic LNG stocks to expand the country’s buffer in times of disrupted supply, warning of heightened geopolitical risks amidst conflicts in Ukraine and Palestine. 

China Seeks to Cool Down Iron Ore Prices. Iron ore futures traded on the Singapore and Dalian Commodity Exchanges have started to diverge with the former still growing to $133 per metric tonne, with Beijing announcing they would supervise the price to maintain “stable operation” of the market.

Nigeria Mulls Revoking Unused Oil Licenses. Nigeria’s oil regulator is considering revoking unused and expired oil exploration leases, equivalent to some 60% of all prospecting licenses comprising 33 auctioned blocks, in a bid to boost production by managing existing contracts better. 

US Majors Defy Calls for Methane Pact. US oil majors Chevron (NYSE:CVX) and ExxonMobil (NYSE:XOM) didn’t provide any financial aid to the global flaring and methane reduction pact unveiled at Dubai’s COP28 summit, with the former not even signing up for the program’s charter.

Shipping Rates Start to Reflect European ETS. As the European Union is set to introduce the region’s shipping market into its Emission Trading Scheme (ETS), freight fixtures have started to factor in the costs of emissions into agreed tanker rates for any vessel with deadweight of 5 kt and above.

India Is Set to Depress Petrochemical Markets. India will commission two multi-billion-dollar petrochemical plants in the coming months with Nayara Energy and Hindustan Petroleum Corp’s (BOM:500104) Barmer complex bringing the country to the much-coveted point of self-sufficiency, simultaneously aggravating petchem margins.

ERCOT Disputes $12 Billion Price Tag. A watchdog for Texas’ electric grid said that new rules that require ERCOT to set aside a new pool of reserves to react quickly in cases of supply shortfalls have led to $12 billion of additional costs, limiting power generation during hot summer days when solar had a preference.