Oil Prices Climb But Remain On Course For A Fourth Consecutive Monthly Loss

Oil prices were up early on Tuesday morning, but both WTI and Brent remain on course for a fourth consecutive monthly loss, although there are some bullish catalysts looming in March.

 

Chart of the Week

– After Europe suffered its worst drought in 500 years last summer, early indications point towards the same scenario (if not worse) happening once again in 2023.

– France’s nuclear woes might continue as water available to cool nuclear reactors is in short supply, whilst the country’s hydropower generation drops to its lowest level since 1976.

– Rhine water levels, Germany’s key waterway, are set to fall below the one-meter mark in the first days of March already as precipitation is a quarter of its usual levels and snow coverage in the Alps remains low.

– Germany’s Rhine problem might be particularly bullish for inland diesel prices as the river is used to haul diesel cargoes further into inland Europe and if tankers can only be laden half-full then costs will soar.

Market Movers

– UK major BP (NYSE:BP) and US heavyweight Chevron (NYSE:CVX) have signed memoranda of understanding with Chinese refiner Yulong Petrochemical to supply its 400,000 b/d refinery in Shandong.

– US shale producer Pioneer Natural Resources (NYSE:PXD) was reportedly interested in acquiring smaller rival Range Resources (NYSE:RRC), but the shale company refuted the Bloomberg report.

– The world’s largest chemicals producer BASF (ETR:BAS) will cut 2,600 jobs across Europe, halt share buybacks, and close one of its ammonia plants in Germany as rising costs jeopardize its earnings.

Tuesday, February 28, 2023

Oil prices were up slightly on Tuesday morning but remained on course for a fourth consecutive monthly loss. There are some potentially bullish catalysts looming this week, with the market preparing for new Chinese economic data (especially industrial activity readings) and U.S. crude inventories. WTI might see some additional support should U.S. oil stocks reverse the trend after eight consecutive weeks of builds, although preliminary data still seems to suggest a minor inventory increase.

US Natural Gas Bounces Back from Trough. Forecasts for colder weather and a stronger pull from U.S. liquefaction facilities (at 12.8 Bcf per day) have pushed up Henry Hub natural gas futures to a one-month high of $2.7 per mmBtu, easing fears that low prices would trigger output cuts.

EU Approves 10th Sanctions Package. Following three unsuccessful attempts the European Union approved late Friday a 10th package of Russia sanctions including export restrictions on dual-use goods, SWIFT bans on several private banks, and the blacklisting of individuals Brussels says are Russian propagandists.

Russia Halts Oil Exports to Poland. Poland’s national oil company PKN Orlen (WSE:PKN) announced Russia halted its pipeline oil supplies to the Eastern European country over the weekend, adding that Russia only accounted for 10% of supply and it would tap into other sources for its refinery needs.

French Court to Rule on Uganda Pipeline Case. The Paris civil court is set to rule on a lawsuit filed by NGO Friends of the Earth, accusing French oil major TotalEnergies (NYSE:TTE) of widespread land expropriation and drilling in environmentally fragile areas in Uganda, potentially derailing the $3.5 billion East African Crude Oil pipeline.

Ecuador Production Halved by Landslides. Ecuador’s oil production has halved to 240,000 b/d as a deadly landslide in the Amazonian province of Napo damaged the country’s two main pipelines, the 360,000 b/d Sote and 450,000 b/d OCP, and forced producers to halt production.

Brazil to Levy Fuel Taxes Again. In a big win for the country’s finance ministry and ethanol producers, Brazil will resume the collection of federal taxes on transportation fuels in a reversal of a Bolsonaro-era waiver in a bid to generate $5.6 billion of additional revenues to the federal budget.

US Hikes Aluminium Tariffs on Russia. In a boost to US smelters such as Alcoa (NYSE:AA), the Biden administration introduced sanctions on Russia’s aluminum exports into the United States and slapped a 200% ad valorem tariff starting from March 10, decrying the increase in US imports in both 2021 and 2022.

China Probes Lithium Producers. The Chinese government launched an investigation into environmental infringements of lithium producers in the province of Jiangxi, with potential disruptions in lepidolite mining threatening between 8% and 13% of global supply.

Things Get Worse for Mexican Oil. Mexico’s national oil company, Pemex, has had a tough week. As it attempts to fix its downstream system after three refinery fires last week, the company has now posted a $9.4 billion loss for the fourth quarter of 2022. Its debt has now spiked to $107.7 billion.

Probe Finds Oil Majors Ignored Seismic Risks in the Netherlands. A Dutch parliamentary inquiry found energy majors Shell (LON:SHEL) and ExxonMobil (NYSE:XOM) repeatedly ignored the risks of gas production at the Netherlands’ Groningen field, leading to tremors that have damaged thousands of buildings.

Colombia Rebels Ramp Up Pipeline Attacks. Colombian rebels have once again bombed the country’s main crude export conduit, the 220,000 b/d Cano Limon-Covenas pipeline as ceasefire talks between the government and the ELN group have so far yielded no results.

France Tries to Build Pro-Nuclear Alliance. France will convene a meeting of 12 EU countries on the sidelines of the upcoming energy ministers meeting in Stockholm as Paris seeks to build a pro-nuclear bloc to counter the likes of Germany and Spain that opposes labeling nuclear as “green”.

The Chinese Love of Coal Continues Unabated. China approved the construction of 106 GW of new coal-fired power plants last year, the highest number since 2015 and four times higher than in 2021, with the speed of project approvals speeding up to only a couple of months.