Weak Chinese demand weighs on oil prices

Oil prices fell slightly on Friday morning as one of the only consistently bearish factors in oil markets, weak demand from China due to Covid lockdowns, came into focus.

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Friday, June 10, 2022

As it seemed COVID-19 was fading from the energy agenda, the reimposition of lockdown restrictions in Shanghai and Beijing reminded oil markets that pandemic-related demand losses were still a threat. It has been China’s inability to rebound from Covid that has provided the main driving force behind oil prices in recent months. In anticipation of a return to normal economic activity in June, China stocked up on oil and petroleum products in May, which may now lead to a slowdown in imports. Continued demand blues from China are now weighing on oil prices, cooling gains made earlier this week, with ICE Brent falling back toward $120 a barrel on Friday.

The White House is stepping up anti-oil rhetoric. Biden administration officials have blasted oil and gas companies for failing to quell soaring fuel prices, with Bharat Ramamurti saying windfall tax is an option on the table as US companies are expected to generate $834 billion in free cash flow this year.

Explosion Rocks Freeport LNG, Sending Henry Hub Down. An explosion has disrupted operations at the 15 mtpy Freeport LNG liquefaction terminal in Texas, sending first-month US Henry Hub gas futures below $9 per mmBtu as all liquefaction trains are expected to be down for three weeks.

Oil majors back Qatar’s giant LNG expansion. Five major oil majors – ExxonMobil (NYSE:XOM), TotalEnergies (NYSE: TTE), Shell (LON:SHEL), Conoco Phillips (NYSE: COP) and ENI (NYSE:E) – were hand picked by Qatar to participate in the $30 billion expansion of the North Field, an increase of 50 million tonnes per year in Qatari production capacity on six new liquefaction trains.

Space scientists spot massive methane leak from PEMEX. European Space Agency scientists have detected a massive methane leak from PEMEX’s Zaap offshore platform, saying that in December 2021, a 17-day ultra-emission event emitted 3% of total emissions from Mexico last year. Related: US Oil Rig Count Rises as Crude Holds at $120

Russia says it has no extra oil for new Indian deals. While India has become the main buyer of Russia’s key export-grade Urals, Russia’s largest oil producer Rosneft (MCX:ROSN) has started to withhold new crude forward deals, telling two Indian refiners it doesn’t have sufficient volumes.

Venezuela demands prepayment as buyer pool shrinks. Venezuela’s state-owned oil company PDVSA has begun shifting its oil sales to prepayment after several recent defaults by its Chinese buyers, with three shipments leaving the country’s Jose terminal without buyers paying for the shipments.

Platts will include WTI Midland in Brent’s basket. Pricing agency S&P Global Platts to understand WTI Midland in its assessment of the price of Brent from June 2023, arguing that the inclusion reinforces the physical volumes that underpin the benchmark, even though the FOB equivalent of WTI will be derived from a CIF price.

The reform of the European carbon market is failing. In a major shake-up for Europe’s ambitious carbon plans, the European Parliament rejected this week a proposal to modernize the EU’s carbon market, with lawmakers raising concerns about hurting businesses with tough new rules now, at a time of soaring energy costs and inflation.

Spain’s gas supply threatened by a dispute with Algeria. Europe’s gas supply crisis is one step away from getting worse after Algeria suspended any commercial cooperation with Spain, with the exception of the gas trade. The move was due to Spain backing a Moroccan plan to offer autonomy to Western Sahara, potentially undermining ongoing talks to extend their pipeline deal.

Devon Energy consolidates Williston acreage with purchase of RimRock. American oil producer Devon Energy (NYSE:DVN) announcement it would purchase the leasehold interest and related assets of RimRock, a holding company managed by US investment firm Warburg Pincus for $865 million, adding 38,000 net acres to the Williston Basin.

Upstream auctioning in Congo poses a global climate risk. The government of the Democratic Republic of Congo will hold an auction of oil blocks on July 28-29, some of the blocks overlap with the largest tropical peatlands in the world, a huge carbon sink storing some 30 billion tons of carbon.

The EU wants a pipeline deal with Egypt and Israel. The European Commission offers the signing of a trilateral agreement that would lay the groundwork for potential natural gas exports from Egypt and Israel to Europe, with a memorandum of understanding expected to be concluded this summer.

Legal battles begin over the seized Iranian cargo. A Greek Court of Appeal reversed an earlier ruling that allowed the confiscation of an Iranian-flagged tanker off the coast of Greece by US authorities, most likely triggering a protracted legal battle over the legality of the seizure.

Libyan supply disruptions continue. With Libya’s largest oil field, El Sharara, still producing well below capacity after its alleged restart earlier this week, protesters have started to close the 200,000 bpd Sarir field in the east of the country, with several ports being blocked.

By Tom Kool for Oilprice.com

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Felix J. Dixon