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The Department of Energy has canceled its latest tender for crude oil for the replenishment of the strategic petroleum reserve after oil prices moved higher than the DoE is comfortable with.
Last month, the DoE purchased 2.8 million barrels at a price of $81 per barrel, which was higher than its self-imposed ceiling of $79 per barrel. It appears the department is unwilling to keep paying more for SPR oil, saying it was “keeping the taxpayer’s interest at the forefront”, per Bloomberg.
“We will not award the current solicitations for the Bayou Choctaw SPR site and will solicit available capacity as market conditions allow,” the department said. “We will continue to monitor market dynamics.”
West Texas Intermediate topped $85 per barrel this week as Brent crude moved closer to $90 per barrel amid heightened geopolitical tensions in Russia and Ukraine and in the Middle East.
Despite the price volatility, the DoE said earlier this year it planned to refill the SPR by the end of the year. The bulk of the “refill” seems to be coming from canceled sales from the SPR rather than from buying additional volumes.
The U.S. saw the stockpiles of crude oil in the SPR fall from 638 million barrels at President Joe Biden’s inauguration to just 347 million barrels by the summer of 2023 as the administration tried to bring down gasoline prices for consumers by releasing over 180 million barrels from the SPR.
The large sell-off in the country’s safety supply of crude oil was met with criticism. Also met with criticism has been the administration’s slow response to falling oil prices. Now prices are trending higher again, placing a barrier in front of further purchases. The pause in new SPR buys could extend if expectations of a prolonged oil price rally materialize.
The Joint Ministerial Monitoring Committee (JMMC) of OPEC+ is unlikely to propose any changes to oil production policy when it meets on April 3, numerous sources in the alliance have told Reuters.
The JMMC, the panel that takes stock of oil market developments and proposes courses of action to the ministers of the OPEC+ group, is meeting on Wednesday, just as oil prices hit their highest level so far this year – and the highest in five months – amid renewed geopolitical tensions in the Middle East and signs of tightening oil supply.
Brent Crude prices topped $88.50, and the U.S. benchmark, WTI Crude, hit $85 per barrel early on Tuesday following a Monday bomb strike that completely leveled the Iranian consulate in Damascus, Syria, with Tehran accusing Israel of being behind the strike.
Wednesday’s meeting of the OPEC+ monitoring panel is expected to be short and straightforward with no proposals for changes in the production policy, two of Reuters’s sources said.
OPEC+ members collectively decided to voluntarily cut 2.2 million barrels per day (bpd) from the group’s production in the first quarter, although much of that was production cuts that were already in effect, including Saudi Arabia’s 1 million bpd voluntary cut.
In early March, the members of the OPEC+ alliance that had pledged the Q1 cuts announced they would roll over the supply reductions until the end of the second quarter.
Saudi Arabia, Iraq, the United Arab Emirates (UAE), Kuwait, Kazakhstan, Algeria, Oman, and Russia are now cutting their respective crude oil production and exports in the first half of 2024 with extra voluntary reductions, on top of the voluntary cuts OPEC+ previously announced in April 2023 and later extended until the end of 2024.
Russia will be cutting oil production instead of exports in the second quarter of 2024 so that all OPEC+ producers that reduce output contribute equally to the cuts, Russian Deputy Prime Minister Alexander Novak said last week.
Nigeria Prompts Oil Producers to Keep Their Crude at Home. Representatives of Nigeria’s oil regulator NUPRC have met with the African country’s crude producers as their commitments to supply Nigerian crude to domestic refineries have been disappointing, with oil firms bemoaning the lack of payment guarantees.
Brazil Sees Buildup of Russian Diesel Tankers. Bloomberg reports that over 3.7 million barrels of Russian diesel has been idling in waters near the Brazilian coast, underscoring the growing bottlenecks in Russian energy deliveries as at least two tankers belong to sanctioned shipper Sovcomflot.
Mexico’s Crude Output Falls to Lowest Since 1979. Crude production of Mexico’s state oil company Pemex fell to its lowest monthly level in 45 years this February, pumping 1.55 million b/d of oil, with the world’s most indebted firm coming well below the government-set output target of 1.9 million b/d.
Kenya and Uganda Settle Their Import Spat. Kenya will allow landlocked Uganda to import oil products through its port of Mombasa, ending a longstanding dispute between the two neighbours, as Uganda’s government handed over exclusive oil product supply rights to global trading firm Vitol.
New Senegal President Questions Oil Deals. Senegal’s newly elected President Bassirou Faye intends to revisit the contractual terms offered to oil companies BP (NYSE:BP), Kosmos Energy (NYSE:KOS) and Woodside Energy (ASX:WDS), making good on his pre-election pledge to increase the state’s ownership of the Grand Tortue and Sangomar projects.
Vietnam Draws Closer to Qatari LNG. Vietnam will be ramping up LNG imports after the July 2023 commissioning of its Thi Vai LNG import terminal, signing its first ever LNG supply deal with Qatar for an April-delivery cargo as the South Asian country’s power demand is expected to grow 10-12% per year.
Friday, March 29th 2024
The oil markets are increasingly putting their trust into OPEC+ production cuts to remain in place throughout this year, a feat which combined with an improving macroeconomic outlook could bring $90 per barrel sooner than assumed. A better-than-expected Q4 for US GDP will most probably consolidate market expectations around a June interest rate cut, leaving behind the demand woes of early 2024. ICE Brent is set to close the week around the $87 per barrel mark, whilst WTI is trading around $83 per barrel.
Baltimore Closure Weighs Heavily on US Coal. The indefinite closure of the Port of Baltimore after the Francis Scott Key bridge collapsed this week will impact US thermal coal exports as Baltimore accounted for 28% of all seaborne outflows, affecting key shippers Arch Resources, Consol and Javelin.
US SPR Replenishment Cost Increasingly More. The latest round of strategic petroleum stock replenishments in the US, totalling 2.8 million barrels in September, has seen the average price hit $81.32 per barrel, above the $79 per barrel threshold that the White House mandated for refilling crude SPRs.
Iraq Extends Iran Gas Supply Deal for 5 Years. Iran agreed on an extension of a gas supply deal with Iraq for another five years, with Tehran sending up to 50 million cubic meters per day, accounting for approximately one-third of Iraq’s electricity generation in the peak-demand summer months.
Libya Oil Minister Fired Amidst Corruption Probe. Libya’s oil minister Mohamed Aoun was replaced within hours of his suspension with a replacement named from within the board of the state oil firm NOC, with Libya’s Tripoli government seeking to greenlight several multi-billion projects that he blocked.
Chile Urges SQM-Tianqi to Settle Scores. After China’s lithium giant Tianqi Lithium (SHE:002466), holding 20% in Chile’s SQM (NYSE:SQM), raised concerns over transparency in the Chilean company’s relationship with copper producer Codelco, the spat escalated to a governmental level with Chile’s Energy Ministry calling for a peaceful resolution.
UK’s Best Oil Eyes Eni Link-Up. UK offshore oil producer Ithaca Energy (LON:ITH), the majority owner of the controversial Cambo heavy oil project, is reportedly in talks with Italian major ENI (BIT:ENI) in a deal that would see Ithaca gain 40-45,000 b/d of producing assets whilst ENI would get a 38-39% stake in Ithaca.
US Treasury Targets Iran Oil Trade. In its sixth round of targeted Iran sanctions, the US Department of Treasury sanctioned Sa’id al-Jamal, a Houthi-linked network of companies that allegedly moves Iranian commodities through forged documents, as well as the Panama-flagged tanker Dawn II.
S. benchmark crude gained over $2 on Thursday as U.S. crude inventories tightened and OPEC+ vowed to keep the output cut status quo as tensions continued to flare in the Middle East and Russia-Ukraine.
At 4:23 p.m. ET on Thursday, U.S. crude benchmark West Texas Intermediate (WTI) trading up 2.05% at $83.02, while global benchmark Brent crude was trading up 1.61% at $87.48.
WTI has gained 14% so far this year.
This week’s inventory data from the Energy Information Administration (EIA) showed a U.S. crude oil stockpile build of 3.2 million barrels, compared to the previous week’s draw of 2 million barrels. In both cases, the data showed a draw in gasoline inventories, helping to support oil prices.
That data, released on Wednesday, put downward pressure on oil prices initially. However, after some time to digest the data, which analysts said was a smaller increase than anticipated for this time of year, prices shifted into rally mode.
"We ... expect U.S. inventories to rise less than normal in reflection of a global oil market in a slight deficit," Reuters quoted SEB analyst Bjarne Schieldrop as saying. "This will likely hand support to the Brent crude oil price going forward."
Also putting upwards pressure on oil prices is the continued intensification of the Russia-Ukraine conflict, which has focused most recently on energy infrastructure.
A Ukrainian drone attack last week on a Russian refinery operated by state-run Rosneft has resulted in a production shutdown after damage to the refinery’s crude processing capacity.
Ukraine has stepped up attacks on oil refineries in Russia in recent weeks, which have reduced Russian refining capacity, and which, reportedly, have the White House concerned about rising international prices.
Ukrainian drone attacks on Russian refineries in recent weeks have taken out as much as 600,000 barrels in daily processing capacity in Russia.
On Thursday, JP Morgan suggested that oil prices could rise further, pointing to Russia’s decision to impose additional curbs on production.
“Russia's actions could push Brent oil price to $90 already in April, reach mid-$90 by May and close to $100 by September,” they wrote in a note, as quoted by Investing.com.