Demand Destruction Is Delaying An Oil Supply Crisis

Oil prices are on course for a fifth straight monthly increase despite significant demand destruction in China, a trend that highlights just how big the current supply problem is.

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Friday, April 29, 2022

As we are getting closer to next week’s OPEC+ meeting, the market has been increasingly questioning the necessity of yet another formal rubber-stamping of monthly production quotas. With Russia’s production down by almost 1 million b/d compared to February levels and Libya constantly battling supply disruptions, the oil group’s compliance rate is only going to increase. Despite a significant drop in demand from China, oil is set for a fifth straight monthly gain, with ICE Brent settling in at around $110 per barrel.

Russia Cuts Poland and Bulgaria Gas Supply. Russia halted gas supplies to Poland and Bulgaria after the countries refused to open new bank accounts and pay for Gazprom (MCX:GAZP) Deliveries in rubles, a decision that the European Commission denounced as blackmail.

OPEC+ Expected to Ram Through Another Agreement. Already in their second year of supply discipline, OPEC+ countries are expected to greenlight another 432,000 b/d monthly increase for June at their monthly 05 June meeting, even as Kazakhstan and Russia have been going down in terms of oil production.

Russia’s Sakhalin-1 Goes into Force Majeure. The Sakhalin-1 project in the Russian Far East, producing some 270,000 b/d of crude, saw its operator ExxonMobil (NYSE:XOM) declare force majeure as it became increasingly difficult to ship crude from there.

US Congress Vows to Go After Oil Companies. US Democrats in Congress have accused domestic oil companies of gouging and profiteering off high gasoline prices, seeking to introduce legislation that would allow the US Federal Trade Commission to go after them and double the penalty to $2 million per day.

ExxonMobil Makes Three New Stabroek Discoveries. US oil major ExxonMobil (NYSE:XOM) made three new discoveries in offshore Guyana, namely Patwa, Barreleye, and Lukanani, taking the total recoverable resource of the Stabroek Block to 11 billion barrels.

No One Knows How To Pay for Russian Gas. Amidst the continent-wide confusion as to whether using Gazprombank accounts to pay for Russian gas breaches EU sanctions, Germany’s economy ministry stated that if the companies declare that contracts have been fulfilled with the euro payment, it should not contradict the sanctions regime.

China to Cut Coal Import Tariffs to Zero. As domestic coal production reached an all-time high of 395 million tons in March, China scrapped import tariffs altogether from May 01 amidst unprecedentedly high global prices, potentially freeing up the way for more discounted Russian coal into the country.

Chevron Signs Up for Suriname Block. Suriname’s state oil company Staatsolie and US oil major Chevron (NYSE:CVX) signed a production sharing agreement for exploration and production for the offshore block 07 in the west of the shallow offshore area, with the latter taking an 80% stake in the project.

Glencore Cuts Guidance on Metals Production. Citing operational challenges and COVID-related drawbacks, UK-listed trading major Glencore (LON:GLEN) lowered its 2022 production guidance on cobalt, copper, and zinc by some 5-10%, with the latter two seeing a 15% qoq decline in Q1 2022.

Shell Tightens Russia Restrictions on Crude Buying. UK energy major Shell (LON:SHEL) revised its restrictions on buying Russian oil, stating that it would no longer accept products with any Russian content after rumors of an emerging ‘Latvian Blend’ stoked fears of tacit blending.

Germany Wants to Take Over Rosneft Refinery. Germany is preparing to take over the Schwedt refinery operated by Russia’s state-owned oil company Rosneft (MCX:ROSN)the only refinery remaining in the country that is running predominantly on Russian oil, in a drive to bring total imports to zero.

No Quick COVID Rebound Looming for China. Despite a five-day Labor Day coming up, China’s crude demand is set to stay depressed as some 180 million residents remain under some form of lockdown, with gasoline and demand still more than 25% below year-ago levels and jet fuel demand down more than 50% year-on-year.

US Sues Leading Metals Producer. The US Securities and Exchange Commission suede brazilian miner Vale SA (NYSE:VALE) over ‘false and misleading’ dam claims following the 2019 Brumadinho dam disaster that killed 270 people, saying that the firm knew about the dam not meeting international standards.

Shell Doubles Down on Indian Renewables. UK oil firm Shell (LON:SHEL) agreed to buy India’s renewable energy-focused company Spring Energy for $1.55 billion, boosting 2.9 gigawatts-peak of solar and wind projects, becoming the third energy major to do so after BP (NYSE:BP) and Total Energies (NYSE:TTE).

By Josh Owens for

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