Oil Price Volatility Is Here To Stay

Oil prices are back above $100 after negotiations between Russia and Ukraine deteriorated. Energy markets are rife with uncertainty, with the IEA suggesting that consumers will have to figure out how to reduce demand as supply shortages loom.

Oilprice Alert. While the war in Ukraine may appear to be escalating rapidly, today’s Global Energy Alert newsletter paints a potential path to peace for Putin. As geopolitical and economic pressures mount on Russia, our analysts are monitoring the situation closely and keeping GEA Members ahead of the news.

Friday, March 18th, 2022

Hopes that Russia and Ukraine would come to some sort of agreement during the most recent set of talks evaporated quickly this week, sending oil prices back above the $100 per barrel threshold. Meanwhile, the International Energy Agency has said that the current energy crisis may worsen in the upcoming weeks, suggesting consumers will have to bear the brunt of a 3 million b/d supply crunch if Russia does not end its invasion of Ukraine. The suggestion from the IEA is that consumers could mitigate this pain by staying home, shunning air travel, and even reducing speed limits. In brief, the volatility we have been seeing so far is far from over.

OPEC+ Compliance Rises to Whopping 136%. The widening discrepancy between production targets and actual output from OPEC+ members reached a new high in February, with participating states underperforming the quota at 136%, equivalent to almost 1 million b/d.

IEA Warns Russia May Lose 3 Million B/d of Output. According to the International Energy Agency, sanctions could force Russia to cut 3 million b/d of oil production, with 1.5 million b/d coming from shrinking marketing opportunities for crude and another 1 million b/d from declining product exports.

White House Approves More LNG Exports to Europe. The Biden administration had authorized additional exports of LNG from Cheniere (NYSE:LNG)allowing outflows of up to 0.7 billion cubic feet per day to countries with which the United States does not have a free trade agreement, seeing strong European demand.

UK Oil Diplomacy Fails to Yield Results. The official visit of British Prime Minister Boris Johnson to Saudi Arabia and the United Arab Emirates, seeking to receive assurances of higher oil production from OPEC’s heavyweights, failed to secure any public pledges towards London.

Alaska Leak Continues to Hamper Oil Production. A shallow gas zone has been leaking for two weeks already at ConocoPhillips’ (NYSE:COP) Alpine field in Alaska’s North Slope, with the leak detected at the field’s oldest drill pad CD1 leading to a 15,000 b/d drop in production throughout this month.

Marathon Mops Up US SPR Release. US refiner Marathon Petroleum (NYSE:MPC) was awarded more than 50% of the 30 million barrel strategic stock drawdown this week, taking home more than 16 million barrels, with downstream peers Valero (NYSE:VLO) and Phillips 66 (NYSE:PSX) trailing its offtake rate by a large margin.

Iran Releases Political Prisoners, Bringing Deal Closer. Iran has released two political prisoners, both UK citizens of Iranian origin held in captivity since 2016, rekindling hopes that an Iranian nuclear deal is within arm’s reach as Moscow had reportedly secured the diplomatic guarantees that it demanded.

Japan Wants More Wind Energy. Spurred by the ramifications of Russia’s invasion of Ukraine and subsequent sanctioning of Russian gas and coal, Japan’s government has streamlined the development of offshore wind projects, aiming to reach 10GW of operable capacity by 2030.

US Senate Introduces Bill to Ban Russian Uranium. A group of Republican senators introduced a bill to ban US imports of Russian uranium as part of a tightening sanctions regime, potentially blocking 16% of American nuclear fuel imports and adding another boost to uranium prices, already at $55/pound.

Norway Sticks to Arctic Drilling Goal. The government of Norway will offer new oil and gas licenses in previously unexplored acreage in the Arctic, having added stakes in 31 exploration blocks in the Barents Sea, reportedly adjacent to mature areas that have been drilled in the past.

Japan Earthquake Halts Refineries. Japan had temporarily lost 10% of its refinery capacity after domestic refiner Eneos (TYO:5020) shut down its 145,000 b/d Sendai and 130,000 b/d Chiba refineries following a 7.4 magnitude earthquake, the strongest since the 2011 Fukushima tsunami.

Blank Check Investor Takes Glencore’s Copper Mine. Blank-check investor firm Metals Acquisition Corp (NYSE:MTAL) bought Glencore’s (LON:GLEN) CSA copper mine in Australia for $1.1 billion, paying most of the deal value in cash and handing $50 million worth of shares to Glencore.

European Countries Advocate Electricity Price Cap. Spain and Portugal will propose capping wholesale power prices at €180/MWh to halt surging electricity prices, essentially reinstating a rule that used to be implemented in the EU until 2019 when curbs on power prices were scrapped across Europe.

Germany to Combine LNG with Ammonia. german energy firm RWE (ENG:RWE) agreed to build a terminal for importing green ammonia in Brunsbüttel, the presumed site for Germany’s first-ever LNG terminal that is expected to come on stream in 2025

By Tom Kool for Oilprice.com

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