Oil prices are expected to rise further this summer

The combination of limited new supply options, growing risks to traditional supply and growing global demand are expected to drive oil prices higher this summer.

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Friday, May 27, 2022

Oil prices edged higher this week as improving demand signals underscored the lack of supply options in oil markets in the event of a drastic contraction in Russian production, a likely outcome if the European Union bans oil. Russian oil. As U.S. crude and gasoline inventories continue to decline, while recent spats between the U.S. and Iran have made any JCPOA breakthrough largely impossible, analysts forecast a further push toward the 130 to 130 range. $140 a barrel this summer.

The EU is pinning its hopes on next week’s summit on Russian sanctions. The European Union hopes to reach an agreement on Russian oil sanctions at next week’s leaders’ summit on May 30-31, according to media reports. to suggest Brussels will split the embargo into pipeline and sea deliveries, allowing more time for the former.

US seizes two allegedly Iranian shipments in the Mediterranean. US-Iranian antagonism is set to escalate further after US authorities seized two loaded tankers in the Mediterranean, anchored in Croatian and Greek territorial waters, for allegedly smuggling oil for the Revolutionary Guard Corps Iranians.

G7 pledges to exit coal, fails to set deadline. Group of Seven (G7) Ministers agreed working towards phasing out coal-fired power, although the commitment was watered down significantly from the original draft of the communique, as the 2030 deadline to end coal-fired power “unabated” has not been respected.

The UK imposes an exceptional tax on North Sea producers. The UK government will impose a windfall tax of 25% on the profits of oil and gas companies until the end of 2025 at the latest, saying the surcharge could be removed when prices return to “historically more normal levels”, without specify what it is.

Departure of Kurdish Minister Bad Omen for Erbil. The Minister of Natural Resources of Iraqi Kurdistan Kamal al-Atroshi resigned due to poor health, a bad sign for Erbil as federal authorities in Baghdad have stepped up pressure on the breakaway region to control its operations.

US refinery capacity is lagging behind the increase in production. U.S. refinery consumption topped the 16 million bpd mark for the first time since August 2021 and product cracks remain at record highs. US refinery expansions will total just 350,000 bpd by the end of 2023, leaving most of the 1 million bpd capacity that was shut down after the pandemic unreplaced.

Nigeria could soon be on the brink. While the Davos talks typically focus on grand strategy, Nigerian Finance Minister Zainab Ahmed declared that the country’s production is so low (at 1.5m bpd in the first quarter) that it is barely able to cover the cost of imported gasoline, blaming the shortfalls on theft and attacks against infrastructure.

Amid record prices, the Taliban become a coal exporter. Afghan Taliban have stepped up coal exports to Pakistan, likely up to 500,000 tonnes a month Reuters reportsas sky-high coal prices in Asia force buyers to find creative ways to source cheap feedstock for power generation.

Related: Middle Eastern growers decide to cut prices as extreme runout eases

India is eager to mop up Russian assets. According to the media reportsa consortium of Indian energy companies including ONGC Videsh and Gail is in talks to buy the 27.5% stake of the major British energy company Shell (LON:SHEL) in the Sakhalin-2 LNG project in the Russian Far East, most likely at a fraction of its pre-war price.

The dissatisfaction of the American Senate reduces the chances of a quick agreement with Iran. The likelihood of a resurrected JCPOA continues to dwindle as the US Senate Foreign Relations Committee this week pressed Iranian negotiators to pull out of stalled Vienna talks, a potential pressure point for the Biden administration ahead of the midterm elections.

Russia and Iran discuss commodity barter deals. Senior Russian and Iranian officials have discussed exchanging oil and gas deliveries, with Russia aiming to supply energy to northern Iran while Tehran would supply Russian companies with oil and gas cargoes in the Persian Gulf.

Italy double against Algeria. First foreign actor in Algeria since his arrival in 1981, the Italian ENI (NYSE:E), sign another round of deals that would increase its gas portfolio in the country, from a green hydrogen plant in the Sahara to being part of the gas project appraisal team alongside Sonatrach.

US natgas pull back after low stocks triggered a spike. While first-month U.S. Henry Hub futures hit a 13-year high earlier this week on low stocks, with intraday trading as low as $9.399 per mmBtu, this strength has now eased with the June contract expiration and expectations of lower demand.

India feels the heat of coal crackling. With the Indian Ministry of Electricity lowering the amount of coal national power plants can expect to receive in June by 11% to 56 million tonnes, importing more coal despite Newcastle spot prices trading above $400 a metric tonne seems the only way out of the current crisis.

By Michael Scott for Oilprice.com

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Felix J. Dixon