Oil falls as markets fear further US Fed action

Crude oil prices fell sharply at the start of the week despite robust US economic data coupled with strong labor numbers and positive manufacturing PMI.

Chart of the week

Delayed and lax, oil price cap not impressing markets

– Oil prices have been in freefall this week with WTI back to trading just above $75 a barrel. barrel as markets remain unimpressed by the G7 oil price cap that has not led to any expected supply shortages.

– Both the EU and the US have agreed a 45-day transition period during which the parties can still legally buy crude oil, provided it is delivered to the final destination by 19 January 2023 at the latest.

– In addition, brick-and-mortar traders, who normally wait weeks to learn the final price, have raised their reservations, saying the price cap forces them to take unnecessary risks without having any impact on Brent or WTI prices.

– Most oil cargoes across the planet are priced on a forward and floating basis, meaning that if G7 buyers want to ensure they meet the price cap, they must buy at a fixed price, a rarity in the markets.

Market Movers

– American oil major Chevron (NYSE:CVX) is expected to take over its Petropiar joint venture with Venezuela’s national oil company PDVSA this week, with production potentially rising to 200,000 b/d within a year.

– The private equity company The Carlyle Group is allegedly in conversations for a billion dollar agreement with the Austrian oil and gas company ABOUT (VIE:OMV) that would see it take over most of the latter’s upstream assets.

– American oil producer EQT (NYSE:EQT) said so Received a request by the Federal Trade Commission related to its $5.2 billion purchase of THQ Appalachia, with the antitrust regulator investigating market concentration.

Tuesday 6 December 2022

News of economic prowess rarely prompts a massive drop in oil prices, but this week’s robust US economic data, with both labor and manufacturing PMIs coming in well above expectations, helped achieve the opposite. Apart from the Russian oil price cap, Chinese demand and others, the prospect of the US maintaining higher interest rates for longer is slowly becoming a mainstream idea as inflationary pressures weigh on market sentiment in the medium to long term. Related: Europe faces stress test as Arctic blast drives surge in power demand

Saudi Arabia is getting closer to China. Saudi Crown Prince Mohammed bin Salman will host Chinese President Xi Jinping indicated this week that Riyadh is ready to diversify its key partnerships at a historic low in Saudi-US relations and sees Beijing as a crucial economic partner to diversify away from oil and gas.

Oil price ceiling becomes reality. After the Group of Seven agreed on a price cap of $60 a barrel last Friday, the new measure took effect this week amid repeated promises by Russia not to sell oil to countries participating in the price cap.

White House asks oil companies to help Ukraine. The Biden administration will summon a meeting this week with oil and gas executives to discuss how the United States could support rebuilding Ukraine’s energy infrastructure as winter approaches.

Flotilla of tankers anchor off the Bosphorus. The Turkish government has started asks all tankers sailing through the Turkish Straits to provide protection and indemnity insurance (P&I) documentation, with at least 21 tankers detained in anchorage zones in the Black Sea.

US Refiners Court Chevron. After Chevron was reauthorized to operate in Venezuela and expand production, US refiners such as Valero (NYSE:VLO) or PBF Energy (NYSE:PBF) expressed their interest in gaining access to the oil major’s new Venezuelan production.

Libya ready for upstream investments. The Tripoli-based GNU Government of Libya has the vow force majeure for oil and gas operations in the country, inviting all international oil companies that have valid contracts with LNOC to resume drilling on their respective projects. Related: Europe faces stress test as Arctic blast drives surge in power demand

Venezuela production edges higher. A 16% increase over October, Venezuela exported just south of 620,000 b/d of oil last month, thanks to increased output from two restarted crude upgraders that PDVSA operates with CNPC, with the Chevron deal setting the stage for further increases.

Shell goes to court to sell its stake. Supreme Court of Nigeria allowed British energy major Shell (NYSE:SHEL) will appeal a ruling that ordered it to pay a 1.8 billion oil spill fine, a key element in a dispute that has so far prevented the oil company from selling its stake in Nigerian onshore assets.

US gas prices lower than a year ago. To put an end to a month-long price increase, US gasoline prices are now falling again with each state to see a decline last week, and the national average price fell 16 cents from a week ago to $3.4 per gallon.

UN struggles with global plastic agreement. A UN mediator negotiates a global plastic treaty confirmed the political interest in such a move, but as usual countries have split over whether the goals should be global and mandatory, or voluntary and country-specific, with the latter group represented by the US and Saudi Arabia.

Investors exit futures before price ceiling. For the third week in a row, investors have been selling off oil futures and options contracts as the latest readings show them leaving the equivalent of 42 million barrels, almost all of which has been cleared from the Brent contract (-39 million barrels).

Handelsmajor now supplies gas to Germany. The second largest commodities trading company Trafigura has signed a four-year, $3 billion loan to supply gas to Germany’s ailing gas trader Sefe, formerly known as Gazprom Germania, with the loan syndicated by over 25 banks.

US, EU mulling tariffs on Chinese metals. The US and the EU are weighing new tariffs on Chinese steel and aluminum, which represent 60% and 57% of global production respectively, arguing that China’s overcapacity represents an increased climate risk.

By Tom Kool for

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