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Why Oil Crashed Below $100

Baystreet - Wed Mar 16, 5:22AM CDT
- In spite of the IEA claiming that Europe could essentially halve its dependence on Russian gas imports within a year, March gas flows have so far averaged 30% higher than February.

- Leading oil majors Shell, BP, and Equinor announced they would not be trading Russian oil and products for the foreseeable future, but that is not the case with gas.

- European spot gas prices have in fact come down over the past week on higher Russian pipeline supplies, with May ‘22 TTF prices trending around €115/MWh ($40/mmBtu).

- Gazprom exports in Jan 01-March 15 to non-CIS countries have totaled 30.7bcm, down 28% year-on-year, primarily on the back of Europe seeing mild weather throughout the winter season.

Market Movers

- Nigeria’s Federal High Court barred UK-based oil major Shell (LON:SHEL) from selling any assets in Nigeria until a decision is reached in a $2 billion penalty case for an alleged oil spill in Rivers State.

- Activist investor Clearway Capital has started calling on the board of French oil firm TotalEnergies (NYSE:TTE) to exit its Russia operations or face a shareholder vote very soon.

- Brazil’s state-run oil company Petrobras (NYSE:PBR) is nearing a deal with US private equity firm EIG Energy Partners to sell a 51% stake in the natural gas pipeline that connects Bolivia and southern Brazil, with the deal assumed to be worth $500 million.

Tuesday, March 15, 2022

The return of Iranian oil to markets is back on the global agenda after Moscow received guarantees that it could continue trading with Iran after sanctions are lifted. This news sent crude prices below the $100 per barrel mark, the lowest level in three weeks. The reappearance of COVID-19 in China only added to the downward pressure in oil markets as the country hit a two-year high of 3,500 cases on Monday, doubling day-on-day. Stringent curbs were reintroduced in many major cities, most notably Shanghai and Shenzhen being put under lockdown, stoking fears that Chinese demand over the upcoming weeks might drop below the stagnating levels of January-February. Thus, despite a war raging in Ukraine and markets still being structurally tight, some of the pricing pressure on refiners has eased.

OPEC Maintains Cautious Outlook on Oil Markets. Shying away from changing any of its 2022 outlook figures, OPEC warned of oil demand risks coming from Russia’s invasion of Ukraine, claiming a prolonged war could derail the introduction of 4 million b/d of incremental demand this year.

EU Tightens Russia Sanctions, Skirts Embargo. The European Union is set to adopt a new round of sanctions directed against Russian oil firms Rosneft (MCX:ROSN), Transneft (MCX:TRNFP), and Gazprom Neft (MCX:SIBN), introducing an investment ban on any new production and exploration projects of theirs, reiterating that EU companies could still buy oil from them.

Permian Basin Production to Hit Record in April. According to the US Energy Information Administration, oil output from the Permian Basin spanning across Texas and New Mexico will rise by 70,000 b/d next month to reach an all-time high of 5.208 million b/d.

Extreme Oil Price Volatility Scares Hedge Funds. Hedge funds and other money managers cut their bullish positions amidst unprecedented volatility, selling 97 million barrels worth of Brent contracts in the week to March 08, though NYMEX WTI bullish bets remained essentially unchanged.

Nigeria Descends into Force Majeure Again. Just as oil markets are desperate to find additional sources of crude supply, oil majors ENI (NYSE:E) and Shell (LON:SHEL) concurrently declared force majeure at the Brass River and Bonny Light terminals, respectively, after a blast at a connecting pipeline left both terminals cut off.

Coal Remains at the Core of China’s Energy. China’s President Xi Jinping reiteratedthe importance of coal in the country’s energy matrix, saying that China could not slam the brakes on coal, with domestic output already at all-time highs, as it intends to avoid energy crunches akin to the one seen last autumn.

India Becomes Main Buyer of Urals. With international trading majors having difficulties selling Urals cargoes into Europe on the back of tightening sanctions, India’s state-owned refiner IOC (NSE:IOC) mopped up 3 million barrels of the Russian crude in this week’s tender, reportedly at a discount of $20-25 per barrel.

Asia’s Petchem Sector Hit by Soaring Crude. Asia’s petrochemical producers are reportedly cutting operating rates at naphtha-fed steam crackers, to an average of 70% so far this month, as soaring naphtha prices have shrunk Asia’s ethylene-naphtha spread to as little as $220 per metric ton.

Danish Majors Sign Huge Green Methanol Deal. Danish utility firm Orsted (CPH:ORSTED) and shipping giant Maersk (CPH:MAERSK) have reached a deal to build a 675MW power-to-X facility in the US Gulf Coast that would produce 300,000 tons per year of e-methanol, powered by 1.2GW of new onshore wind and solar firms.

Saudi Aramco Doubles Down on Chinese Downstream. Saudi Aramco (TADAWUL:2222) has taken a final investment decision to enter a JV to build a 300,000 b/d refinery and an ethylene-based steam cracker in Panjin, Liaoning, to be overwhelmingly supplied (70%) with Saudi barrels.

London Tries to Get UK North Sea Producers Back on Board. Following four consecutive years of annual production declines and several major projects annulled on environmental grounds, the UK Government has now asked North Sea producers to boost the supply of domestic natural gas.

Canada Railway Strike Might Spark Another Supply Disruption. Thousands of workers at Canadian Pacific Railway (TSE:CP) have threatened to strike this week, potentially disrupting major flows of grain, potash, and coal from Friday onwards, potentially sending all those commodities flying.

LME to Restart Nickel Trading Tomorrow. The London Metal Exchange will resume nickel trading on March 16th following a price spike above $100,000/mt last week, with China’s Tsingshan reaching an agreement with major banks not to make margin calls on its multi-billion-dollar positions.

By Josh Owens for