English
Market News Is the international oil market facing changes again? Saudi Arabia raises prices after increasing production, Russia finds a way out under pressure
Is the international oil market facing changes again? Saudi Arabia raises prices after increasing production, Russia finds a way out under pressure
From a worldwide perspective, the shortage of refining capacity is a common phenomenon. Saudi Crown Prince Mohammed bin Salman last month cited underinvestment in global refining capacity as one of the key drivers of higher gasoline, diesel and jet fuel prices. Varga expects that new refining capacity will not come online until 2023, so the U.S. will still face tight energy supplies and high refined oil prices in the next few months.
2022-06-07
10395
International oil prices hit a new high since March on Monday, with WTI crude oil futures hitting an intraday high of $120.99. OPEC's top producer Saudi Arabia decided to raise the price of crude it exported in July after OPEC+ announced last week's decision to increase additional output, bolstering expectations for summer consumer demand in the northern hemisphere.
Tamas Varga, senior market analyst at crude oil broker PVM Oil Associates, said in an interview with a reporter from China Business News that the main factors driving oil prices are optimistic demand and tight supply. In his view, with the start of the summer driving season in the United States and the control of the epidemic in China, the demand outlook has been significantly boosted, while the EU's ban on Russian oil imports and OPEC+'s own actual production capacity factors show supply-side difficulties. There are many signs that the market fundamentals are tightening, and oil prices are expected to maintain a volatile upward pattern in the short term.
Saudi price hike sparks supply and demand concerns
Saudi state oil company Aramco said on Tuesday it raised the official selling price (OSP) of its flagship Arabian Light crude to Asia for July at a premium of $6.50 to the average price of benchmark crudes in Oman and Dubai, up from $4.40 in June. The official selling price (OSP) premium for Arab Light crude oil destined for Northwest Europe to the average Brent price rose to $4.30 from $2.10 previously.
Prior to this, OPEC+ announced at the monthly ministerial meeting that it would bring forward the production increase plan in September. The scale of the increase in production in the next two months will increase by 50% month-on-month to 648,000 barrels per day, hoping to reduce the supply of Russian oil exports to the market. Impact. Saudi Arabia's shift in attitude is also key to OPEC+'s excess production increase this month, with the kingdom's energy minister Abdulaziz bin Salman saying earlier last month that it was in the "common interest of stabilizing energy prices". ", OPEC+ should keep politics out of its decision-making. However, on the eve of the ministerial meeting, Saudi Arabia expressed its willingness to increase production.
Analysts believe that Saudi Arabia's "shot" provided an opportunity to ease the relationship between the two countries when US President Biden repeatedly sought help and was blocked. The two sides had differences on issues such as the situation in Yemen. The White House issued a statement praising Saudi Arabia's role as the OPEC+ chair in reaching an agreement to increase production, and Biden plans to visit the Middle East in the near future.
Saudi Arabia raises export prices for July (source: Saudi Aramco website)
However, Saudi Arabia's decision to raise oil prices has made the market aware that supply may struggle to keep up with the recovery in fuel demand as summer approaches in the northern hemisphere.
OPEC+ crude output fell to a six-month low of 41.58 million bpd in April as Russian output was hit by Western sanctions, according to data from S&P Global Platts. That means the gap between OPEC+ actual production and quotas rose to a record 2.59 million bpd, with 13 of 19 members struggling to meet output targets.
Varga told Yicai.com that Saudi Arabia's decision triggered a chain reaction, "Market concerns have been ignited. As global oil demand recovers from the epidemic, OPEC+ production increases still cannot meet demand, and are not enough to make up for the restrictions on Russian exports. Given that only a few countries such as Saudi Arabia, the United Arab Emirates and Iraq have spare capacity, he expects that the actual increase in production may be only about half of the promised amount.”
Russia seeks to break out
The Western alliance is working to limit the export of Russian crude oil. At last week's EU special summit, EU leaders reached a consensus in principle on the EU's sixth round of sanctions against Russia, including a "partial embargo" on Russian oil. Meanwhile, the European Union will plan to bar insurers from insuring ships carrying Russian oil, a move aimed at stifling its access to international oil markets.
"If they ban insuring tankers carrying Russian oil, it's going to intensify the fight for oil and it's going to be a tumultuous summer," said Daniel Yergin, S&P's global vice president, explaining, "If you don't have Insurance, most reputable tankers don’t sail because the risk is huge. While insurance isn’t as important as oil barrels, it’s a big deal.”
Medvedev, Vice Chairman of the Russian Federation Security Council, pointed out on social media on the 6th that the purpose of the EU is to destroy Russia's economy, but it is actually disrupting the world economy. The ban on insuring Russian oil tankers would make it difficult to transport oil to third countries, but the problem could be solved by signing intergovernmental agreements with third countries and providing state guarantees.
The price advantage of Urals crude oil has won the favor of some importing countries (Source: Statista)
Shipping data shows that Russia is looking for alternative buyers, with Asia an important target. India is buying aggressively due to record discounts. Urals, Russia's flagship crude, is currently trading around $30 a barrel below the Brent benchmark, providing a perfect reason to replenish inventories in energy importers not constrained by sanctions.
Varga told the First Financial Reporter that Russia's oil exports are undergoing a large-scale restructuring. "First of all, with the EU embargo taking effect, more Russian crude oil will be found elsewhere, and there is no guarantee that these increases can continue to be absorbed by Asia. In addition. , Iran is fighting against Russia to regain market share in the Asian region." He believes that the downside risks to Russia's oil exports in the next few months are obvious, and the real test is yet to come. The road to finding a buyer remains tortuous as Russia's Urals total crude oil storage at sea reached a record 62 million barrels at the end of May, according to shipping tracker Vortexa.
On the other hand, storage space in Russia is gradually dwindling, which may lead to producers being forced to stop production. Under the "baseline" scenario, oil production will fall by 9% year-on-year this year, according to production and export forecasts previously released by the Russian economy ministry. At the same time, the International Energy Agency (IEA) expects that after the implementation of the EU oil embargo, Russia's energy supply will be reduced by 3 million barrels, and inventory pressure may gradually appear.
America can't take care of itself
As summer approaches in the northern hemisphere, energy demand is rising rapidly as travel demand recovers. The head of the International Energy Agency, Fatih Birol, said last week that Russia is the cornerstone of the global energy system, and the conflict between Russia and Ukraine and Western sanctions against Russia have caused the world to face a triple crisis of oil, gas and electricity at the same time. Birol believes the current energy crisis will be bigger and longer than the crises of the 1970s and 1980s: it was just the oil crisis. With the arrival of the summer, there may be a fuel shortage crisis in the United States and Europe, and people will find diesel, gasoline and kerosene in short supply at the same time.
To make up for the loss of Russian oil, the EU has turned its attention to Africa. Data from financial data service Refinitiv Eikon showed that 660,000 barrels a day of crude oil, mostly from Nigeria, Angola and Cameroon, arrived in northwest Europe in May. Driven by demand, the price of Nigerian light, sweet crude oil hit a record high, at a premium of more than $7 over Brent crude.
South America became another alternative. Italy's Eni and Spain's Repsol could start shipping Venezuelan oil to Europe as early as next month, resuming an oil-for-debt deal that was halted two years ago due to sanctions, the media said, citing people familiar with the matter. contract.
U.S. gasoline prices hit another all-time high on Monday (Source: AAA)
The U.S. is also ramping up supplies to Europe. European deliveries of crude imported from the U.S. rose more than 15 percent in May, the fastest monthly pace on record, according to commodities market data analysis firm Kpler. However, this has exacerbated tensions in the U.S. domestic fuel market, with U.S. Energy Information Administration (EIA) data showing that U.S. Midwest refined oil inventories have fallen to their lowest levels since December 2020, and U.S. East Coast refined oil inventories have fallen to record lows . U.S. retail gasoline prices hit another record high on Monday, AAA data showed.
In order to reduce the impact of energy prices on people's lives, the US government is considering measures such as restricting exports, relaxing environmental protection requirements for refined oil products and taxing the oil and gas industry. Varga told China Business News that since inflation is at a nearly 40-year high, Biden hopes to control oil prices as soon as possible to restore the current unfavorable midterm election situation, so he seeks dialogue with Saudi Arabia and Venezuela. The real problem now, though, is refinery capacity, which has pushed gasoline crack spreads to record highs above $40.
From a worldwide perspective, the shortage of refining capacity is a common phenomenon. Saudi Crown Prince Mohammed bin Salman last month cited underinvestment in global refining capacity as one of the key drivers of higher gasoline, diesel and jet fuel prices. Varga expects that new refining capacity will not come online until 2023, so the U.S. will still face tight energy supplies and high refined oil prices in the next few months.
Article source: First Financial
Tamas Varga, senior market analyst at crude oil broker PVM Oil Associates, said in an interview with a reporter from China Business News that the main factors driving oil prices are optimistic demand and tight supply. In his view, with the start of the summer driving season in the United States and the control of the epidemic in China, the demand outlook has been significantly boosted, while the EU's ban on Russian oil imports and OPEC+'s own actual production capacity factors show supply-side difficulties. There are many signs that the market fundamentals are tightening, and oil prices are expected to maintain a volatile upward pattern in the short term.
Saudi price hike sparks supply and demand concerns
Saudi state oil company Aramco said on Tuesday it raised the official selling price (OSP) of its flagship Arabian Light crude to Asia for July at a premium of $6.50 to the average price of benchmark crudes in Oman and Dubai, up from $4.40 in June. The official selling price (OSP) premium for Arab Light crude oil destined for Northwest Europe to the average Brent price rose to $4.30 from $2.10 previously.
Prior to this, OPEC+ announced at the monthly ministerial meeting that it would bring forward the production increase plan in September. The scale of the increase in production in the next two months will increase by 50% month-on-month to 648,000 barrels per day, hoping to reduce the supply of Russian oil exports to the market. Impact. Saudi Arabia's shift in attitude is also key to OPEC+'s excess production increase this month, with the kingdom's energy minister Abdulaziz bin Salman saying earlier last month that it was in the "common interest of stabilizing energy prices". ", OPEC+ should keep politics out of its decision-making. However, on the eve of the ministerial meeting, Saudi Arabia expressed its willingness to increase production.
Analysts believe that Saudi Arabia's "shot" provided an opportunity to ease the relationship between the two countries when US President Biden repeatedly sought help and was blocked. The two sides had differences on issues such as the situation in Yemen. The White House issued a statement praising Saudi Arabia's role as the OPEC+ chair in reaching an agreement to increase production, and Biden plans to visit the Middle East in the near future.
Saudi Arabia raises export prices for July (source: Saudi Aramco website)
However, Saudi Arabia's decision to raise oil prices has made the market aware that supply may struggle to keep up with the recovery in fuel demand as summer approaches in the northern hemisphere.
OPEC+ crude output fell to a six-month low of 41.58 million bpd in April as Russian output was hit by Western sanctions, according to data from S&P Global Platts. That means the gap between OPEC+ actual production and quotas rose to a record 2.59 million bpd, with 13 of 19 members struggling to meet output targets.
Varga told Yicai.com that Saudi Arabia's decision triggered a chain reaction, "Market concerns have been ignited. As global oil demand recovers from the epidemic, OPEC+ production increases still cannot meet demand, and are not enough to make up for the restrictions on Russian exports. Given that only a few countries such as Saudi Arabia, the United Arab Emirates and Iraq have spare capacity, he expects that the actual increase in production may be only about half of the promised amount.”
Russia seeks to break out
The Western alliance is working to limit the export of Russian crude oil. At last week's EU special summit, EU leaders reached a consensus in principle on the EU's sixth round of sanctions against Russia, including a "partial embargo" on Russian oil. Meanwhile, the European Union will plan to bar insurers from insuring ships carrying Russian oil, a move aimed at stifling its access to international oil markets.
"If they ban insuring tankers carrying Russian oil, it's going to intensify the fight for oil and it's going to be a tumultuous summer," said Daniel Yergin, S&P's global vice president, explaining, "If you don't have Insurance, most reputable tankers don’t sail because the risk is huge. While insurance isn’t as important as oil barrels, it’s a big deal.”
Medvedev, Vice Chairman of the Russian Federation Security Council, pointed out on social media on the 6th that the purpose of the EU is to destroy Russia's economy, but it is actually disrupting the world economy. The ban on insuring Russian oil tankers would make it difficult to transport oil to third countries, but the problem could be solved by signing intergovernmental agreements with third countries and providing state guarantees.
The price advantage of Urals crude oil has won the favor of some importing countries (Source: Statista)
Shipping data shows that Russia is looking for alternative buyers, with Asia an important target. India is buying aggressively due to record discounts. Urals, Russia's flagship crude, is currently trading around $30 a barrel below the Brent benchmark, providing a perfect reason to replenish inventories in energy importers not constrained by sanctions.
Varga told the First Financial Reporter that Russia's oil exports are undergoing a large-scale restructuring. "First of all, with the EU embargo taking effect, more Russian crude oil will be found elsewhere, and there is no guarantee that these increases can continue to be absorbed by Asia. In addition. , Iran is fighting against Russia to regain market share in the Asian region." He believes that the downside risks to Russia's oil exports in the next few months are obvious, and the real test is yet to come. The road to finding a buyer remains tortuous as Russia's Urals total crude oil storage at sea reached a record 62 million barrels at the end of May, according to shipping tracker Vortexa.
On the other hand, storage space in Russia is gradually dwindling, which may lead to producers being forced to stop production. Under the "baseline" scenario, oil production will fall by 9% year-on-year this year, according to production and export forecasts previously released by the Russian economy ministry. At the same time, the International Energy Agency (IEA) expects that after the implementation of the EU oil embargo, Russia's energy supply will be reduced by 3 million barrels, and inventory pressure may gradually appear.
America can't take care of itself
As summer approaches in the northern hemisphere, energy demand is rising rapidly as travel demand recovers. The head of the International Energy Agency, Fatih Birol, said last week that Russia is the cornerstone of the global energy system, and the conflict between Russia and Ukraine and Western sanctions against Russia have caused the world to face a triple crisis of oil, gas and electricity at the same time. Birol believes the current energy crisis will be bigger and longer than the crises of the 1970s and 1980s: it was just the oil crisis. With the arrival of the summer, there may be a fuel shortage crisis in the United States and Europe, and people will find diesel, gasoline and kerosene in short supply at the same time.
To make up for the loss of Russian oil, the EU has turned its attention to Africa. Data from financial data service Refinitiv Eikon showed that 660,000 barrels a day of crude oil, mostly from Nigeria, Angola and Cameroon, arrived in northwest Europe in May. Driven by demand, the price of Nigerian light, sweet crude oil hit a record high, at a premium of more than $7 over Brent crude.
South America became another alternative. Italy's Eni and Spain's Repsol could start shipping Venezuelan oil to Europe as early as next month, resuming an oil-for-debt deal that was halted two years ago due to sanctions, the media said, citing people familiar with the matter. contract.
U.S. gasoline prices hit another all-time high on Monday (Source: AAA)
The U.S. is also ramping up supplies to Europe. European deliveries of crude imported from the U.S. rose more than 15 percent in May, the fastest monthly pace on record, according to commodities market data analysis firm Kpler. However, this has exacerbated tensions in the U.S. domestic fuel market, with U.S. Energy Information Administration (EIA) data showing that U.S. Midwest refined oil inventories have fallen to their lowest levels since December 2020, and U.S. East Coast refined oil inventories have fallen to record lows . U.S. retail gasoline prices hit another record high on Monday, AAA data showed.
In order to reduce the impact of energy prices on people's lives, the US government is considering measures such as restricting exports, relaxing environmental protection requirements for refined oil products and taxing the oil and gas industry. Varga told China Business News that since inflation is at a nearly 40-year high, Biden hopes to control oil prices as soon as possible to restore the current unfavorable midterm election situation, so he seeks dialogue with Saudi Arabia and Venezuela. The real problem now, though, is refinery capacity, which has pushed gasoline crack spreads to record highs above $40.
From a worldwide perspective, the shortage of refining capacity is a common phenomenon. Saudi Crown Prince Mohammed bin Salman last month cited underinvestment in global refining capacity as one of the key drivers of higher gasoline, diesel and jet fuel prices. Varga expects that new refining capacity will not come online until 2023, so the U.S. will still face tight energy supplies and high refined oil prices in the next few months.
Article source: First Financial
Bonus rebate to help investors grow in the trading world!
Or try Free Demo Trading
