A turbulent week for oil markets

There has been a lot of turmoil in oil markets this week, with the EU banning Russian oil, OPEC accelerating its production increases and US inventories falling again. At the end of the week, the sentiment is decidedly bullish, with OPEC unable to calm the rise in oil prices.

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Friday, June 3, 2022

This week has been marked by a lot of turbulence on the oil markets. As China finally emerged from its three-month lockdown nightmare, oil prices were swayed by reports that Saudi Arabia and the United Arab Emirates would seek to accelerate monthly OPEC+ increases. When the oil major effectively opted for increases of 648,000 bpd in July and August, it looked like prices could be down in earnest, closer to the $110 a barrel mark. Unfortunately for oil bears, news of falling US inventories, combined with the EU’s decision to ban Russian oil imports, sent oil prices soaring once again.

OPEC+ is accelerating the increase in production. OPEC+ Members agreed to raise their overall production targets by 648,000 bpd in July and August, bringing forward by a month the final outcome of the oil group’s production cuts for fear of a drop in Russian production.

The EU bans the insurance of Russian oil cargoes. The European Union has finalized its ban on financing and financial assistance services for Russian oil shipments, a measure that is expected to come into force after a six-month liquidation period, effectively banning EU entities from provide Russian trade insurance.

The White House will retroactively increase blending volumes from 2021. According to the media reportsthe Biden administration is set to increase ethanol blending mandates for 2021 above the previously reported number of 13.32 billion gallons, sending D6 revolving credits skyrocketing 11% on Wednesday when the story broke. Related: Where Are Oil Prices Going?

Iran cuts gas supply to Iraq again. Iran To cut gas deliveries to Iraq just over a month after restarting them, the decision being motivated by the non-payment of arrears. Supply was supposed to reach 50 million cubic meters per day, so Iraq now faces widespread power shortages.

The Netherlands wants to drill again. The Netherlands and Germany agreed to jointly develop a gas field in the North Sea, 12 miles off the northern coast of the two countries, reversing a previous rejection by German authorities, as the two countries seek to wean themselves off Russian gas.

Kazakhstan is renaming its crude to minimize risk. Kazakhstan is changing the name of the crude it exports through Russian ports to Kazakhstan Export Blend Crude Oil (KEBCO), in a bid to differentiate itself from Russian-origin shipments that typically carry the Urals name.

The Tullow-Capricorn merger creates an upstream African powerhouse. Tullow Oil (LON:TLW) and Capricorn Energy (LON:CNE)formerly known as Cairn, has agreed to merge in an all-stock $830 million deal, the as-yet-unknown new entity is expected to have production of around 100,000 boepd.

The EPA restores the right of states and tribes to block projects. The United States Environmental Protection Agency restored the right of states and tribes to block energy projects for environmental reasons using the federal clean water permitting process, reversing a Trump-era ruling that will most likely slow new infrastructure projects.

The usual EU money squabbles start again. The Spanish government announcement let the EU pay for any new natural gas interconnection between Spain and its European neighbours, with Madrid being completely independent of Russian energy supplies and absorbing LNG instead.

Colombian court approves hydraulic fracturing pilot. The highest administrative court in Colombia has authorized hydraulic fracturing pilot projects continue as it examines the legality of an earlier lower court decision to block two projects, allowing the national oil company Ecopetrol (NYSE: ECO) and ExxonMobil (NYSE:XOM) continue drilling operations.

Chevron warns of US fuel export ban. Chevron (NYSE: CVX) CEO Michael Wirth warned against banning fuel exports as a way to bring down the price of petroleum products, saying that over the next few months product shortages will materialize, with Europe the most likely candidate.

Russia restricts noble gas exports. Russian Ministry of Commerce announcement that it would limit exports of noble gases, including neon, a key ingredient in chipmaking, worsening a supply shortage that has already seen one of the world’s largest producers – Ukraine – disappear from markets.

The new Australian government is dealing with the gas crisis. While Australia was caught out by a cold snap that drove up demand for heating along with demand for natural gas, Canberra called industry to help as gas prices have quadrupled and the government’s mandate to keep LNG at home could only be triggered from 2023.

Norway finally sees the prospects for LNG improving. Norwegian energy major Equinor (NYSE: EQNR) restarted the Hammerfest LNG facility in the country’s Arctic waters after being idle for nearly two years following a fire in 2020, increasing Norway’s export capacity by 650 billion cubic feet per day.

By Tom Kool for Oilprice.com

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