Another week of snakes and ladders in the oil markets as prices pushed significantly higher as Global tensions caused by the Russian invasion of Ukraine and the fast-approaching date for EU countries to turn their backs on Russian crude supply loom large in the rearview mirror …..(currently December the 5th… we say “currently” as every intention good or bad in the World today seems full of unexpected twists and turns).
The primary question responsible for the bullish mood in the oil markets is to figure out how Europe will replace those rejected 1.5 million (more or less) barrels per day of Russian crude oil when the December 5th ban kicks in. This appears ably interpreted by Wall Street banks as a bridge too far for Europe to traverse and giving their economists cart blanche to predict $100+ per barrel as inevitable by the end of the year, (let’s face it they almost got there on Friday!) …….however, there are a number of plausible arguments why this isn’t an open and closed bullish circle.
A few snapshots of oil market facts and figures suggest why it may not be as easy as markets currently predict to sustain $100+ for very long…. should it finally happen! There are a number of potentially bearish scenarios that may play a hand in keeping prices in check……Europe will already have its December and likely January crude slate fixed.
Chinese lockdowns and restrictions on the movement of the population have seen China’s oil demand fall by 400,000 barrels per day (according to none other than Bank of China International Ltd analysts!) during 2022.
Whilst China announced during the weekend they will start allowing some flights to bring foreign nationals into the country again, Morgan Stanley went a step further in their bullishness claiming China’s economy will be rocking and rolling again come the spring of 2023 free of Covid lockdowns and on the road to former glory (note to Morgan Stanley….as long as they don’t invade Taiwan!). According to Morgan, China has no alternative to this strategy after President XI announced his economic plans for the future at his recent re-election (It all seems so straightforward!!)
Nigeria is getting back on track with crude oil production having previously fallen to levels rarely seen of around 1.2 million barrels per day back in August 2022. The December crude oil loading slate sees 18 cargoes allocated to customers (3 months ago we were seeing just about 13) and this includes 4x 950,000 barrel cargoes of Forcados a quality not seen since July due to pipeline vandalism.
Last week the oil market pushed higher after EIA weekly statistics reported record high U.S crude oil exports of 5.1 million barrels per day….since then exports have dropped to 3.9 million barrels per day which strangely the markets have chosen to ignore in terms of a price adjustment lower.
Saudi Arabia has trimmed its oil prices for December to Asian customers highlighting some concern for demand in the region.
European energy demand is lower than expected heading into winter. One reason is, temperatures are unseasonably warm …. Consumers aren’t turning on their heating… but more interestingly those same consumers appear to be much more energy conscious and are making a big effort to use less fuel in all areas, mainly due to high costs but also with half an eye on the consequences of Global warming.
We should also take a passing glance at how Russia will sell what will become “surplus crude oil barrels” by early December which would have arrived in Europe as for sure they will need to go somewhere. Preferred receivers India, Turkey and China seem to be a tad overbought for now leaving a large number of ships swinging around their anchors laden with Russian oil across the globe. However, Russia seems to have found another ally in the Middle East in the shape of the United Arab Emirates. The odd cargo of Russian crude oil has been spotted at the newly expanded Ruwais refinery, (situated on the coast of the Arabian Gulf, some 245 kilometres west of Abu Dhabi City, it refines over 922,000 bbls per day and is one of the largest and most advanced refineries of its kind in the World) either ready for processing to make products or discharge into crude storage to form a blend for re-export by the UAE. This is a growing change in the market and one to be followed carefully in the weeks to come.
It should be noted that Canada and the USA are the only countries who have officially banned the import of Russian crude and petroleum products….. so the UAE is not breaking any rules other than perhaps those of the moral high ground. Whilst these points highlight reasons to be a touch cautious in rushing to join the “100+ club” there’s no doubt that by the end of this week bulls were in the ascendency having driven crude oil markets higher by more than $3 per barrel. However, there are certainly arguments against the idea of a runaway crude for the rest of 2022. Uncertainty and fear drive this market and uncertainty is the only certain thing in markets today.
Talking of uncertainty, Putin’s orange friend made us all look up this week. When asked if he will run again for President in 2024 he responded “very, very, very probably”…….words that leave us all “very, very, very probably” wondering how long is the waiting list for Elon Musk’s space bus to Mars!!