Macroeconomic Concerns Cap Crude Prices

Oil prices failed to recover from the steep sell off on Monday and Brent is now hovering just above $71 per barrel.

The sudden de-escalation of tensions between Israel and Iran led to a widespread cancellation of call options held by market participants who wanted to hedge their exposure against sudden upward price swings.

– In the immediate aftermath of Iran’s attack on Israel in early October, trade in call options has soared to unprecedented levels, tripling compared to September’s average of 129,000 contracts per day.

– By now, however, the call skew that was in place throughout October has all but disappeared and the net length in WTI Nymex positions held by hedge funds has been falling for four straight weeks, back to early September levels of 113,773 contracts.

– Open interest held by all market participants in ICE Brent and WTI Nymex contracts remains subdued at 4.08 million contracts, equivalent to a 5% decline in positions taken since this year’s peak market interest was reached in early June.

Market Movers

– Mining giant Rio Tinto (NYSE:RIO) has halted operations at its Simandou iron ore in Guinea after a contractor’s death, stalling progress at the world’s biggest mining project once it starts first production next year.

– Portugal state oil firm GALP (ELI:GALP) has played down expectations of an imminent farm-out at its Mopane offshore discovery in Namibia, saying it would first complete its four-well-appraisal programme at the 10 Bbbls prospect.

– Malaysia’s national oil company Petronas is planning an ‘aggressive’ expansion in Indonesia, seeking to develop the deepwater Bobara block and build on new infrastructure in the East Java area.

Tuesday, October 29, 2024

Israel’s much-anticipated retaliatory attack on Iran finally happened, however, its severity was so underwhelming that right after the markets reopened on Monday, ICE Brent futures slid $5 per barrel during Monday’s trading session. Temporarily buoyed by news of another US SPR solicitation, the current $71 per barrel price for Brent seems to be capped by macroeconomic concerns again. Unless the Israel-Iran standoff is rekindled, the upside for crude is quite limited.

Russia’s Gas Giant Keeps on Piling Losses. Russia’s national gas company Gazprom reported a $3.2 billion net loss in January-September 2024 compared to a $4 billion profit in the same period of 2023 (not accounting for subsidiaries), despite seeing revenues edge higher by 8% year-on-year.

US Commits to Last Pre-Election SPR Purchase. The US Department of Energy announced a new round of SPR solicitation for up to 3 million barrels for delivery from April through May 2025, potentially taking the total of replenished volumes to 58 million barrels, bought at an average price of $76 per barrel.

Mexico’s Oil Output Decline Continues. Crude output by Mexico’s national oil company Pemex plunged to a 45-year low of 1.452 million b/d in September, down more than 100,000 b/d year-over-year, with further declines expected on the back of Q4 2024 upstream capex curtailments.

Qatar Wants a Share of Iraq’s Solar Energy Pie. QatarEnergy, the world’s leading supplier of LNG, has agreed to a 50% stake in the 1.25 GW Basrah solar energy project developed by French oil major TotalEnergies (NYSE:TTE), designed to provide electricity to some 350,000 homes in the south by 2027.

JPMorgan Warns of AI Demand Straining Water Supplies. Leading US bank JPMorgan Chase (NYSE:JPM) has warned of artificial intelligence jeopardizing the country’s water resources as the cooling needs of large data centers can demand as much as 5 million gallons of water per day.

Mexico Seeks to Blackout-Stricken Cuba. Mexico is sending a tanker with 400,000 barrels of oil to Cuba where an acute energy crisis has led to a series of nationwide blackouts that were aggravated by tropical storms, stepping in as the island nation’s long-time ally Venezuela failed to react in time.

European Majors Return to Libya. Undeterred by Libya’s recent oil blockade that shut in most of production, Italy’s state oil firm ENI (BIT:ENI) and the UK’s oil major BP (NYSE:BP) have announced their exploration return to Libya, resuming appraisal works after onshore drilling was halted in 2014.

Russia’s Latest LNG Project Halts Production. The Novatek-operated sanctioned Arctic LNG 2 plant has stopped liquefying natural gas due to high inventories and restrained shipping options as its dedicated fleet has been placed under US sanctions in May, shutting in 6.6 mtpa of capacity.

Chinese Margin Squeeze Hits State Refiners. China’s largest oil company PetroChina (SHA:601857) is set to shut its largest domestic refinery in the summer of 2025, shuttering the 410,000 b/d Dalian Petrochemical plant as it’s too close to the city centre, seeking to ramp up refinery runs elsewhere.

Permian Drilling Restrictions to Curb Output. Recent legislative changes by New Mexico – banning drilling within 2,250ft of residential, educational or health facilities as well as near bodies of water – are expected to impact 15% of producing wells and reduce the US state’s production by 5-6% from 2026.

Mali Threatens to Disengage World’s Top Gold Miner. Mali’s military junta threatened to take back the Loulo mine concession operated by Barrick Gold (NYSE:GOLD) once its permit lapses in February 2026, accusing the Canadian miner of financial crimes and even briefly jailing some of its executives last month.

Japan Eyes Restart of Key Nuclear Plant. Japan is preparing to restart the 796 MW Unit 2 of the Unagawa nuclear plant, the closest to the epicenter of the 2011 Tohoku earthquake and subsequent tsunami that debilitated Fukushima, with the government taking 13 years to retrofit the unit.

Houthis Strike Again, Targeting Three Ships. After more than a week-long lull, Houthi militias claimed they targeted three ships in the Red and Arabian Seas, allegedly en route to Israel, however, two Liberia-registered vessels were sailing to Oman and one was moving from Egypt to Shanghai.