WTI drops below $100 as recession fears grow

Despite serious supply problems in the market, oil prices collapsed on Tuesday morning due to renewed fears of a recession and the potential for demand destruction.

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Europe

While most of 2022 can only be described as a hard time for Europe’s beleaguered industries, things are about to get much worse as Russian pipeline supplies plummet and energy prices rise across the continent.

– Prices the previous day in Italy and France rose above €400 per megawatt-hour, with Germany heading slightly lower – attesting to the tight pricing, annual futures prices for 2023 are only marginally lower than the current pricing range.

– Although gas-focused power generators are struggling, with the main suffering Uniper (ETR: UN01) Germany has lost about 60% of its stockpile value since the beginning of June, and Germany remains conservative about its plans to declare a gas emergency.

Poor water performance has also exacerbated the situation, with Platts estimating a 6 GW loss across Europe, while nuclear power remains hampered by frequent French strikes and blackouts, as well as a German shutdown.

market movers

– As expected by the Algerian National Oil and Gas Company Sonatrach It confirmed that it will seek to review gas pricing formulas with all its customers, and move away from linking oil.

UK-based energy company Shell (LON: SHEL) It signed a deal with QatarEnergy for the North East Field expansion project, acquiring a 6.25% stake in the project, the same as TotalEnergies and ExxonMobil.

There is widespread speculation that the major American oil company ExxonMobil (NYSE: XOM) It may be in the best quarterly performance ever, with second-quarter operating profit soaring to more than $16 billion, and that may have angered the Biden administration.

Tuesday 5 July 2022

A look at the stock market today is enough to understand the main concern of the oil markets at the moment, the recession. While most assessments expected the recession to start later this year, its first signs are already showing with European economies likely to enter recession in the third quarter. Seeing Brent crude futures losing 10% today and dropping nearly $102 a barrel, one would probably fail to notice that supply remains a huge problem – the almost complete deterioration of Libya into all-out internal conflict and offshore production in Norway seeing its first mass production. The strike campaign in recent years has further narrowed potential sources of supply. Moreover, Saudi Aramco’s August operating plans also indicate little, if any, spare capacity remaining. But all this is not enough to break the cycle of fear.

Saudi Aramco flirting with record high sales. Due to weak supply, strong demand and a very sharp decline, Saudi Aramco raised all of its equivalent prices in August 2022, with the Asian Arab Light Index set at $ 9.30 a barrel, just 5 cents from its all-time high in May.

Germany reform the rescue law to help energy companies. Facing a worsening outlook, Uniper (ETR: UN01)The German government has renewed legislation that would allow Berlin to provide companies with rescue packages modeled on pandemic relief for airline Lufthansa.

JPMorgan warns of $380 oil after price cap. Analysts from the US Investment Bank JPMorgan (NYSE: JPM) He warned that in the event of a cap on the price of Russian crude, a deliberate (deliberate) cut in oil production could more than triple oil prices to $380 per barrel.

Saudi Arabia and Kuwait want more crude oil from the neutral zone. Negotiators from Riyadh and Kuwait met this week to discuss ways to develop production from the jointly administered Neutral Zone, seeking to move current production of 175,000 bpd to a production capacity of 500,000 bpd.

The security situation in Libya is getting worse. Tensions came to a head this week as Libyan protesters not only continued to shut down oil fields, but also stormed parliaments of both the Tripoli and Tobruk governments, denouncing the endless power cuts in the North African country.

Pakistan eyes Russian crude. Admired by the sudden increase in India’s imports of Russian crude to nearly one million barrels per day, the Pakistani government has asked its refineries to consider its discounted purchases as a way to mitigate the impact of a rising energy import bill.

Norway is heading to strike offshore oil. Starting today, a union-organized strike of offshore rig workers will gradually paralyze about 10% of Norway’s oil and gas production after previous rounds of negotiations failed to make any progress on wage demands.

Uneven prospects scare away permanent bodies of oil. Amid the deteriorating economic outlook, last week saw another drop in the long positions held by investors in oil contracts, although the sale of 9 million barrels last week was more moderate than 71 million barrels in the week ending June 21.

Friendly investors pledge to act aggressively on utility companies. Less than a week after the US Supreme Court limited federal powers on environmental regulation, activist green investors pledged to pursue a more comprehensive ESG performance for utility companies.

US LNG exports continued to decline. US LNG outflows fell to their lowest level since February at 6.42 million tons as the Freeport LNG shutdown continued to hamper export possibilities, while hot weather has so far kept domestic gas prices from plummeting.

Russia finds light oil in the offshore Arctic. Russia’s largest oil producer Rosneft (MCX: ROSN) It announced the discovery of more than 600 million barrels of light sweet crude in the Arctic Pechora Sea, claiming it has the authority to do so on its own.

India imposes an unexpected tax on fuel exports. As India seeks ways to manage its fiscal deficit, the government in New Delhi has imposed an unexpected tax on exports of petrol, diesel and jet fuel, although actual exports are lower than last year amid strong domestic demand.

Chile is close to enforcing copper mining rights. Chile’s government has introduced a bill that would increase copper mining revenue to fund its social programs, while taxing adjusted margins at a marginal rate of 2% to 40%, depending on current market rates.

By Michael Kern for Oilprice.com

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