January 11, 2023

Putin’s ceasefire backfires

As the year turned to face the freezing winds of winter, many people in Europe turned out to face the balmy temperatures of Spring as the first week of January hit record highs in a number of nations across Europe.
National records fell in eight countries – and regional records in another three. Warsaw, Poland, saw 18.9C (66F) on New Year’s day while Bilbao, Spain, was 25.1C – more than 10C above average. The heat was on but for heating oil demand, the heat was very definitely off.

Markets reacted accordingly, falling rapidly as many pundits announced an energy crisis for this winter had been averted because of the unprecedented warm weather……however, it’s worth noting that at this time of year, markets are thin and easily pushed around… although it was hard to get away from the flood of bearish news hitting investor’s pockets.

Covid has gained an advantage in China… gripping the World’s biggest crude oil importer…but despite covid’s resurgence China’s “Covid zero” restrictions on people’s movements have been lifted after 3 long years of waiting. Investors hope the reopening will eventually reinvigorate a $17-trillion economy suffering its lowest growth in nearly half a century, but the abrupt policy reversal has triggered a massive wave of infections overwhelming some hospitals and causing business disruptions. Oil markets remain sceptical that the “herd” infection strategy will kick China’s crude oil demand back to those heady days of 14 million barrels per day. This seems like a long and difficult road to travel for China as things stand today.

Vladimir Putin announced a 36-hour truce in his war with Ukraine to celebrate Russian Christmas on the 6th and 7th of January… Ukraine rejected his offer … many labelling it yet another propaganda stunt… what symbolism was depicted by him standing in a Kremlin chapel ready to pray alone on a Russian Christmas Eve is hard to define, and anybody’s guess, but standing alone seems his destiny should this war and the very real threat to peace in the World ever end…

In other news…….
Europe’s imports of diesel and gasoline from the United States look to be heading to a two-year high, according to data from “Vortexa” a well-respected statistical and strategic analyst. Europe’s U.S. loadings of diesel and gas oil hit 660,000 metric tonnes in December, according to Vortexa, confirmed by Petroleum Argus. It was the highest total exported from America to Europe in any month since September 2020—and a 70% increase over cargos loaded in November. The rush for Europe to stock up on diesel and gas oil comes just a couple of months ahead of the European Union’s full ban on Russian-origin petroleum products set to begin on February 5. (Bizarrely, Europe is also in discussions with the United Arab Emirates to buy more diesel and gas oil, a refining hub recently favoured by Russia to process its crude oils!!)

Europe’s gain in diesel stocks is one thing but America’s huge diesel and gas oil export levels would seem their loss as diesel inventories across the country remain 14% below their 5-year average. Their inventory rebuilding programme has certainly not been helped by the big Christmas freeze America still endures to this day which took out 40% of Texas refinery production and saw American refinery production drop from 91.6% of capacity to 79.6% last week as reported in this week’s EIA statistics.

Phillips 66 warned earlier this week that the gasoline and diesel markets will be tight this summer, with refiners having been running at or near full capacity for months and now fighting to recover from the big freeze which slowed or closed a number of American refineries for weeks. Meanwhile, the largest crude oil refinery in the United States has returned to production, people familiar with the plant’s operations told Reuters on Friday. The nation’s largest crude oil refinery, Motiva Enterprises, shut down on December 23 as the cold snap ripped through much of the country. Motiva, located in Port Arthur, Texas, has a capacity of more than 630,000 BPD, and is wholly owned by Saudi Aramco, the state-run oil giant of Saudi Arabia……

Norway became Germany’s single-largest natural gas supplier in 2022, overtaking Russia, as total German gas imports dropped by 12.3% compared to 2021, the German Federal Network Agency, Bundesnetzagentur, said on Friday. Another hit for Putin’s pocket as high European temperatures forced gas prices down. In summary, it’s not easy to get bullish about this market as many ongoing price drivers remain without a solution or a conclusion… The final 2 stories of the week certainly set a big bear signal in place….The U.S. Energy Administration has turned down February arrival offers it received to buy back strategic crude oil stocks sold out last year, citing wrong grade and wrong price … and Saudi Arabia has lowered its crude oil prices for both European and Asian customers this week to its lowest premium since November 2021.


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