Oil Bulls Begin This Year With An Upward Trend

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  • Oil prices are climbing as inventories drop and demand continues to recover despite Omicron’s fears.
  • With WTI now above $81 and Brent nearing $84, it is clear that bullish sentiment has taken over
  • Meanwhile, Kazakhstan has seen oil production return following political upheaval and Libya is battling weather to bring its production back online

With oil inventories tightening and demand for crude exceeding expectations, oil markets have been seized by positive sentiment at the start of 2022, says an article published in OilPrice.

Tight market

Oil has started off on a positive note in 2022 so far, with robust demand continuously exceeding market expectations and Omicron’s fears waning. Even though there has been a relative lack of major developments in the market, partial supply disruptions in Libya and Ecuador have kept markets tighter than expected, pushing oil prices above the $80 per barrel mark.  

Widening gap

Initial production data seem to suggest that the gap between OPEC+ quotas and actual production keeps on widening, with a recent Platts survey hinting that December additions amounted to only 310,000 b/d. 

Failed targets

A total of 14 counties (out of the 18 nations participating) failed to hit their production targets in December, including Russia whose crude output has been stagnating for a couple of months already. 

Market Movers

CNOOC

Chinese offshore production firm CNOOC (HKG:0883) resumed offshore exploration in Iraq’s offshore waters, the first on record, following an almost two-year-long hiatus caused by COVID-19. 

EPD

US pipeline operator Enterprise Products (NYSE:EPD) stated it would buy Warburg Pincus-owned Navitas Midstream, owner of a network spanning 1,750 miles in the Midland portion of the Permian Basin, for $3.25 billion in cash.  

XOM

US oil major ExxonMobil (NYSE:XOM) made another venture into the low-carbon sector by buying 49.9% of Norwegian biofuels company Biojet AS, a producer focusing on biofuels made from forestry and construction waste. 

Global Outlook

The limited impact of Omicron on markets compared to all previous COVID variants has been the main bullish factor for oil prices in 2022, with demand continuously proving skeptics wrong. This week finally brought a resolution to Libya’s prolonged infrastructure blockade yet it will be weeks before we see production and exports back at levels they were before December 2021. That being said, global inventories are still low and there has been little change on that front recently. News of European stocks dropping 11% month-on-month in December, as well as the tacit anticipation of US crude inventories seeing their seventh consecutive weekly draw, is only adding to bullish sentiment.

Kazakhstan

Kazakhstan Oil Production Back to Normal. Following a flare-up of anti-government protests last week, the situation has normalized in Kazakhstan with key oil fields, such as Chevron-operated (NYSE:CVX) Tengiz, producing at normal rates again. 

Iraq

Iraq to Boost Export Capacity. Iraq will be able to boost crude exports from its Basrah export terminal by some 250,000 b/d from Q2-2022, having rehabilitated aging pipelines connecting to the port, bringing total export capacity to 3.45 million b/d. 

Libya

Weather Takes Over in Libya. Even though a flurry of news coming from Libya seems to suggest that the blockade of key fields in western regions will be lifted soon, loading operations at Libyan ports have been shut for three days since Saturday, battered by bad weather. 

Venezuela

Venezuela Restarts Exports of Diluted Crude. According to media reports, Venezuela’s state oil company PDVSA will resume exports of diluted crude oil (DCO) this week after imports of Iranian condensate have allowed it to build up a sizable inventory, kept in vessels anchored outside the port of José. 

United States

US Natgas Futures Soar on Northeast Cold. Front-month US gas futures rose to $4.18 per mmBtu this week, the highest it has been since December 1, on expectations of the coldest day of the winter coming this week in the Northeast, just as LNG demand abroad shows no signs of abating. 

France

The French Start Striking Again. Less than a month after the December 2021 strike hindered France’s nuclear sector, the CGT union of energy workers called for another strike from January 25, sending French base power prices as high as €260 per MWh ($295 per MWh). 

Russia

Gazprom Withholds ESP Gas Sales. It has been two and half months since Russia’s gas export monopoly Gazprom (MCX:GAZP) last held gas auctions on its Electronic Sales Platform (ESP), indicating that it is deliberately trying to keep its surplus of gas at home. 

Argentina

Argentina Hypes Up Offshore Superbasin. Argentina’s state-backed energy company YPF (NYSE:YPF) heaped praise on its first major offshore project in years, saying the CAN 100 block, located off the coast of Buenos Aires, has the potential to produce 200,000 b/d within several years.

Indonesia

Indonesia Eases Coal Export Ban. After Indonesia’s sudden announcement of banning all coal exports triggered an all-Asian outcry, the outright ban was eased after 10 days as Jakarta allowed 14 fully-laden vessels to depart to buyers in the Asia Pacific. 

Japan

Japan PowerGen to Mix Ammonia with Coal. The Japanese government will spend $250 million on subsidies for two pilot projects aiming to burn at least 50% hydrogen-produced ammonia with coal at power plants by 2029, without specifying whether the hydrogen would be grey or green. 

Brazil

Brazilian Mining Hit by Heavy Rains. Less than a year after an unprecedented drought, Brazil’s mining operations were curtailed by heavy rainfall, especially in southeastern regions, forcing mining majors like Vale (NYSE:VALE) and Vallourec (VLLP) to suspend operations at several mines. 

Europe

EU Agrees to Disagree on Taxonomy. The European Commission extended the deadline for countries to give feedback on its proposed inclusion of gas and nuclear projects into its ‘sustainable investment’ taxonomy as regional heavy-hitters Germany and Spain criticized the proposal. 

Kuwait

Kuwait Signs Flaring Deal with Chevron. Kuwait signed an agreement with US oil major Chevron (NYSE:CVX) to export excess natural gas from the Wafra field to the state oil company KOC, potentially hinting at a ramp-up in production at the joint Saudi-Kuwaiti field located in the Neutral Zone.

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Source: OilPrice

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