Oil Prices Surge on Supply Uncertainty, Demand Optimism, and Geopolitical Risk

Oil prices continued to rally on Tuesday morning, with Brent breaking past $75 as another hurricane threatened production in the Gulf of Mexico, China implemented its stimulus measures, and Israel targeted Hezbollah with strikes in Lebanon. 

– Crude oil inventories in Cushing, Oklahoma, the delivery point for the NYMEX WTI future contract, have been unprecedentedly low recently, sitting near the lowest in a decade for this time of the year.

– The launch of the Trans Mountain Expansion pipeline with a nameplate capacity of 590,000 b/d of which roughly two-thirds are currently utilized, limited the inflows of Canadian oil to Cushing and hindered any reasonable stock build over the summer.

– Cushing’s current stockpiles of 22.7 million barrels as of September 13 represent less than a third of the storage hub’s operational capacity of 78 million barrels, stoking concerns that tank bottoms could prompt a sudden supply squeeze to refiners.

– With Enbridge now operating the US-bound Mainline system without congestion, the scarcity of barrels in Cushing has widened the spread between the NYMEX futures contract and WTI Houston quotes, with the September average so far standing at $1.5 per barrel.

Market Movers

– Brazil’s state oil company Petrobras (NYSE:PBR) is reportedly seeking the entire 40% stake in Galp’s Mopane exploration block that was put up for sale recently, eager to set foot in Namibia’s offshore.

– Nigeria’s national oil company NNPC is reportedly in talks with investors to revive the dormant Brass LNG project, with a planned capacity of 10 mtpa, and potentially also find partners for the mothballed Olokola LNG.

– US oil major Chevron (NYSE:CVX) stated it is not looking to invest in new US liquefaction capacity and ruled out taking a stake in Driftwood LNG, saying it can monetize its gas without additional LNG plants.

Tuesday, September 24, 2024

The prospect of another hurricane in the US Gulf of Mexico, triggering platform evacuations and shut-ins again, as well as China’s much-anticipated stimulus measures have breathed life into oil prices and ICE Brent swung over the $75 per barrel for the first time in more than three weeks. With Israel-Lebanon potentially adding some geopolitical risk, too, the upside might be far from over.

China Unveils Huge Stimulus Package. China’s Central Bank presented the largest stimulus package since the pandemic to bolster economic growth in the country, lowering borrowing costs and cutting mortgage interest rates, sending Chinese stocks and bonds to their highest in more than two years.

Oil Producers Evacuate Gulf Platforms Again. US offshore oil producers started to evacuate non-essential staff from Gulf of Mexico production platforms amidst increasing risks of Hurricane Helena hitting the area, with Shell (LON:SHEL) announcing it would shut its Stones and Appomattox facilities.

OPEC Continues to Woo Brazil. Presenting OPEC’s latest annual World Oil Outlook in Brazil, the organization’s Secretary General Haitham al Ghais said he is looking forward to working with Brazil over the coming years, seeking to make the South American nation a full OPEC+ member.

FTC Set to Approve Chevron-Hess Merger. The US Federal Trade Commission is expected to approve Chevron’s (NYSE:CVX) $53 billion purchase of Hess Corporation as soon as this week, leaving the ExxonMobil–Chevron arbitration over Guyanese assets the last hurdle to be cleared.

Microsoft Eyes Restart of Three Mile Island. US power operator Constellation Energy (NASDAQ:CEG) saw its stock soar by 30% after it inked a deal with Microsoft (NASDAQ:MSFT) to resurrect a unit of the Three Mile Island nuclear plant in Pennsylvania to feed an AI-driven demand surge in the region.

Russia Sees Lower Oil Revenue Ahead. According to Russia’s draft three-year budget until 2027, the Kremlin anticipates a decline in oil and gas revenue by 14% over the next three years, down from $118 billion expected in 2025, due to a more lenient taxation regime on Gazprom and lower oil prices.

California Sues ExxonMobil Over Plastic Pollution. California’s Attorney General and several environmental groups have sued US oil major ExxonMobil (NYSE:XOM) over allegedly engaging in a decades-long campaign that helped fuel plastic pollution, filing a case in a San Francisco state court.

Europe’s Hydrogen Project Pipeline Gets Thinner. UK-based energy major Shell (LON:SHEL) scrapped its plans to build a low-carbon hydrogen plant in Norway less than a week after Equinor relinquished its idea of a 10 GW blue hydrogen plant in the country, citing an overall lack of demand.

Canada Unlikely to Recover TMX Investments. IISD, a Canadian environmental think tank found that Canada’s federal government is unlikely to recover its $25 billion investments in the TMX pipeline, saying it constitutes a $6.4 billion fossil fuel subsidy and should be offset by additional levies.

Iron Ore Weakens Further on Soft Chinese Data. Having hit a one-year low earlier this week on higher-than-usual Chinese steel production and exports, iron ore futures have spiked on news of China’s economic stimulus, with Singapore futures trading above $92 per metric tonne.

US Natgas Prices Soar on Hurricane Risks. Henry Hub natural gas futures jumped some 7% this week to a 3-month high on early indications that US oil and gas producers would be forced to shut production in the offshore Gulf, with the October-delivery front-month contract surpassing $2.6 per mmBtu.

Glencore Is About to Lose Its Rosneft Stake. Global commodity trader Glencore (LON:GLEN) is set to lose its 0.57% stake in Russia’s largest oil producer Rosneft after the Moscow Arbitration Court rejected its appeal to postpone the payback of the $130 million it owes to state-owned Sberbank.

Offshore Canada Yet to Become New Drilling Frontier. Despite hopes that the high-impact Persephone well could hold as much as 1 billion barrels of oil in Canada’s offshore, the Exxon-spudded wildcat turned out to be dry, just as Equinor’s Sitka prospect yielded no commercial reserves.