Another wild week darts by as crude prices climbed relentlessly higher but the bullish mood was psychologically dampened by the end-month expiration of the front month ICE Brent contract (which left us at $109.96 and was replaced by the much weaker October contract which closed at 103.97!)
This scrappy market remains tedious and continues to confuse behaving like an old washing machine bored with the same old wash programmes but occasionally finding the energy to go into a spin!
It seems some 35 economists are now perking themselves out of a comatose state by predicting a final 2022 Brent number already almost as if to pass the time ($105.75 per barrel by the way!)
Wednesday’s EIA stats figures were one reason why front-month crude prices rediscovered their swagger, American crude stocks fell by 4.52 million barrels week on week, and gasoline by 3.3 (some increase in consumer demand) million barrels which revived the bulls’ hopes for a price push higher, but as with ice Brent the rollover of gasoline prices and the subsequent lower numbers from one month to the next left us feeling summer is done (at least in gasoline demand terms) and consumer demand is slowing.
As the month turned gasoline prices suddenly looked quite battered and the bulls started praying for a healthy US hurricane season to slow refinery production and boost prices again.
The second boost for prices was yet another act of subterfuge by Russia but this time in the gas supply chain. Having assured Germany and in turn Europe last week the Nordstream 1 gas pipeline was back operating to its current capacity, the volume was suddenly halved this week as Gazprom claimed “extraordinary circumstances” for the cut in supply. If that was “extraordinary “ Putin’s order to shut down the gas supply to Latvia yesterday wasn’t extraordinary but blatantly planned! Whichever way we look at it the opening and closing of Russian gas supplies will continue to play havoc with consumers and have a knock-on effect on oil prices.
Investors are starting to look down the road again and what they see is a mixed and confusing picture … Russia is firmly embedded in their war in Ukraine and will relentlessly pursue the conquering of that country and likely others too. Joe Biden has Covid, for a second time, and has confined himself to the White House. This isn’t good news for the West given he is approaching his 80th year.
The U.S Federal reserve bank is dead set on cooling inflation having increased interest rates by 75 points again this week. This act would normally see oil prices move lower but all they did this week was ignore the move and scuttle higher regardless.
All eyes will be on the next OPEC+ Meeting on Wednesday, August 3rd. They have replaced all the lost production curtailed in April 2020 during the height of the Covid pandemic, so begs the question what do they do next? They are under pressure to increase production but the “+” stands for Russia and Vladimir Putin won’t allow opec+ to increase Middle East production at the expense of Russian crude supply. Fortunately for the alliance they have a get-out trick given their allocated producer quotas aren’t being met by physical supply by members due to operational constraints (actual supply is around 2.7 million barrels per day below quotas ) so this time around Putin may get his way at the expense of continuing requests to pump more oil from Joe Biden.
Nancy Pelosi, the 3rd most powerful person in America, starts her trip to Asia this week, including a trip to Taiwan. President Xi is sending out dire warnings to America that China will respond if Nancy sets foot in Taiwan, now considered by China to be almost theirs. We await a change in the speaker of the House of Representative’s itinerary!!
U.S reports this week say crude oil exports hit a record 4.5 million barrels per day (not surprising as WTI has been $8 per barrel or so below Brent!) but production levels seem to have hit a wall as the supply of fracking equipment to increase production further has become tight. Overall crude and products exports hit 10.9 million barrels per day.
JP Morgan analysts see an increase of 700,000 barrels per day in oil demand between October 2022 and March 2023 brought on by the switch by some countries from gas to oil, but by the same token see that offset by normalisation in Libyan oil production and an increase of global oil supply 1 million barrels per day over demand from 2023.
It would seem the emphasis is shifting away from crude oil supply disruptions to demand destruction as we move to the turn of the year given expert demand growth predictions have been reduced by economists from 2.3 to 5 million barrels per day to 1.4 to 2.5 million barrels per day.
We can expect another wild week!