WEEKLY ENERGY RECAP: Russian crude disruption fails to lift oil market

It was surprising that the supply outage of Russian Urals crude oil flows to Germany and Poland didn’t cause an upward momentum in oil prices, says Faisal Mrza. (AFP)
Updated 27 April 2019
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WEEKLY ENERGY RECAP: Russian crude disruption fails to lift oil market

RIYADH: Last week started with a major bullish sentiment in the oil market, after the US said it was halting sanctions waivers on Iranian crude exports. This drove Brent prices to a five-month high, touching $75 per barrel, although they dropped by the end of the week to $72.15.
Though oil prices didn’t change much on a weekly closing basis, a steep price fluctuation took place during the week.
Prices fell sharply at the end of the week on speculation that some Iran crude oil exports may be able to find customers regardless of the end to sanctions waivers. Also, global refining margins fell across the board last week, mostly driven by weak middle distillates margins (diesel and jet fuel), though gasoline margins have remained relatively firm ahead of the high demand season in summer.
Most of the supply distributions have been attributed lately to geopolitical factors; however, some other technical factors have emerged after Europe refineries stopped processing Urals crude from Russia after they found contamination in oil delivered via the Druzhba pipeline.
It was surprising that the supply outage of Russian Urals crude oil flows to Germany and Poland didn’t cause an upward momentum in oil prices, especially given that the global market is already short of supplies of similar crude grades.
Urals crude oil is close in quality to the sour crude produced in the Arabian Gulf. It accounts for most of the Russian crude exports in eastern and central Europe, and almost half of Russia’s total crude oil exports globally.
The contamination came at a time when European refiners are already questioning Urals quality, especially the sulfur levels.
Its unclear whether the concerns will affect Russia’s future market share, and hence the global supply and demand balance. Likewise, it is not yet clear how long the issue will last, given that Reuters reported it could have legal effects, as buyers in Europe could open lawsuits against Russian suppliers.

  •  Faisal Mrza is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter: @faisalmrza


WEEKLY ENERGY RECAP: China distracts from Strait of Hormuz

In this May 5, 2019 photo issued by Karatzas Images, showing the British oil tanker Stena Impero at unknown location, which is believed to have been captured by Iran. (AP)
Updated 20 min ago
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WEEKLY ENERGY RECAP: China distracts from Strait of Hormuz

  • China’s economy slowed to the weakest pace since quarterly data began in 1992 amid the ongoing trade standoff with the US, while monthly indicators provided signs of some stabilization emerging

RIYADH: Crude oil prices deteriorated despite rising tensions in the Arabian Gulf toward the end of the week. Brent crude prices dropped to $62.47 and WTI dropped to $55.63 per barrel.
WTI recorded its biggest weekly decline in seven weeks, having fallen sharply earlier in the week on hopes that the situation in the Gulf would improve along with parallel worries about global demand. At the same time, a major storm hurt output in the Gulf of Mexico, where production was down by almost a fifth in its wake.
We saw a continuation of the theme of previous weeks where the oil price largely ignored events in and around the Strait of Hormuz, even after Iran seized two British-flagged oil tankers.
Instead, the market reacted to Iran’s potential nuclear deal with the US that would include permanent enhanced nuclear inspections in return for the lifting of sanctions.
China’s crude oil throughput rose to a record in June, up 7.7 percent from a year earlier, following the start-up of two large new refineries. Crude oil processing reached 13.07 million bpd, beating the previous record in April of 12.68 million bpd.
Despite strong oil demand from China, oil prices slipped after Beijing posted its slowest quarterly economic growth in at least 27 years, reinforcing concerns about demand in the world’s largest crude oil importer.
China’s economy slowed to the weakest pace since quarterly data began in 1992 amid the ongoing trade standoff with the US, while monthly indicators provided signs of some stabilization emerging.
The International Energy Agency pounced on that news and published a shaky oil demand outlook and reduced its 2019 oil demand forecast to 1.1 million bpd, down from its initial forecast of 1.5 million bpd, due to the slowing global economy and the US.-China trade war.
Yet the economic impact of the US-China trade argument is not an oil market-reflective. Surprisingly, some economists suggest that the trade dispute could spark a global recession, sending incremental oil demand lower. This has caused growing concern about supply and poor economic growth that has pushed oil prices lower, based purely on sentiment.
Arabian Gulf crude grades have further strengthened backed by demand uptick from North Asian refineries.
Norway’s crude oil production slipped to the lowest in three decades to 1.38 million bpd in April from 1.387 million bpd in March and 1.531 million bpd a year ago.

Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq