Volatility casts a long shadow over the global oil market
The concerns in the market hinge on the following: low spare capacity, low inventories in the market, and losing supply due to rising geopolitics.
Russian export loss is still a wildcard even as some countries opt for its discounted prices while others announce cuts of 1-2 million barrels per day or bpd. Oil has remained firm above $100 per barrel and volatile.
Oil prices were also buoyed up by the US Energy Information Administration weekly data that showed another US crude stock drawdown last week. In addition to the news of a lack of a breakthrough in Eastern Europe, the rise was more pronounced for WTI futures amid a sharp decline in crude stocks in Cushing, Oklahoma.
However, pressure on prices putting cap is now wobbly with inflation squeezing consumers and the coronavirus disease hitting demand and supply chains in China. Some industry sources perceive that the potential is likely for the Iran deal and more Venezuela exports.
Another crucial influencer is the Biden administration’s decision to release an unprecedented 1 million bpd from the US Strategic Petroleum Reserve for the next six months. The release would start in May and total up to 180 million barrels, resulting in a southbound price movement. The US also called on oil companies to increase drilling to boost supply.
Oil prices also declined after investors focused on signs of progress in peace talks in Eastern Europe. The COVID-19-related lockdowns in China further weighed on crude oil demand.
In the meantime, refinery margins reversed trends and soared in all main trading hubs. Most of the support continued to come from gas-oil markets and persistent product inventory tightness, exacerbated by the ongoing heavy turnaround season.
Prices were mixed during the week amid high market volatility. It eased slightly after the EU refrained from banning Russian energy imports, and investors focused on potential signs of progress in Russia-Ukraine peace negotiations.
Disruptions due to storm damage also hindered loadings of Kazakhstan’s light CPC Blend from the Caspian Pipeline Consortium, or CPC, terminal at Yuzhnaya Ozereyevka at the Russian Black Sea port of Novorossiysk.
The pipeline provides the cheapest and easiest route to oil markets for three giant fields in Kazakhstan: Tengiz and Kashagan, which produce around 650,000 bpd and 400,000 bpd of crude, respectively, and Karachaganak, which contributes about 250,000 bpd of gas condensate. Two out of three CPC single point mooring berths were apparently damaged, and repairs could take up to two months due to shortages of equipment and required materials.
Maintenance season starts in April in refineries at a global level. It might reduce global refinery throughput. This, in turn, might lead to a bearish crude price outlook in the coming weeks stemmed by reduced demand for crude.
The recent COVID-19 restrictions in Shanghai might affect transportation fuel demand and could pose headwinds for the oil market in the near term.
The surge in US crude oil exports to 3.8 million bpd could set the stage for higher-than-expected flows in April. Domestic oil that would typically go to Cushing, Oklahoma, is being exported when trade dislocations have boosted supply worries.
• Mohammed Al-Shatti is a Kuwaiti oil analyst.