Geopolitical Risk Keeps Oil Prices Afloat As Bearish Pressure Builds

Oil prices are under an increasing amount of downward pressure, but geopolitical risk and continued production cuts from OPEC+ have helped to halt a significant drop.

Crude prices have been fighting off the risk of a downward correction for several days now, with ICE Brent having fallen below the $90 per barrel mark. The prospect of more crude from Venezuela and higher US crude inventories has been ratcheting up pressure on the physical side, while the first signs of aid reaching Palestinians in Gaza appear to be eating away at the geopolitical risk premia baked into the flat price. Eurozone macroeconomic figures have been borderline recessionary, but it seems that there would need to be a string of bad news from the US or China for the oil markets to react.

US oil major Chevron (NYSE:CVX) announced the purchase of Hess Energy (NYSE:HES) for $53 billion in stock, opening up ExxonMobil’s Guyana portfolio and bringing its total oil and gas production to 3.7 million b/d of oil equivalent.

Oil companies are planning to return to sanctions-free Venezuela as soon as possible, with services major SLB (NYSE:SLB) already mobilizing resources whilst Brazilian firm Petrobras (NYSE:PBR) is “seriously” considering upstream investments.

The International Energy Agency believes the current level of oil storage in member states is enough to take action in case of supply disruptions, despite the agency’s total inventories shedding 182.7 million barrels over the course of 2022.

Following recent deals with TotalEnergies and Shell, Qatar’s NOC QatarEnergy signed a 27-year term supply deal to deliver up to 1 million tonnes of LNG per year to the Tuscan port of Piombino from 2026, to be sourced from the North Field expansion.

Completely dependent on oil imports, Japan has been urging Saudi Arabia and other OPEC members to bring back more crude supply into the global markets as high oil prices are taking a toll on its governments’ finances.

In addition to its rare earth metal export curbs, China announced it would require export permits on graphite, a critical mineral for electric vehicles as almost all use it in their battery anodes, boosting prices as graphite is down 25% on the year at $540 per metric ton.

The Waseca formation in the eastern part of Canada’s Alberta province has become a hotspot for drillers as companies applied for 81 licenses to drill it this year, the biggest increase in any play, as conventional drilling saves on emissions and time.

With Europe’s TTF prices still hovering above €50 per MWh ($17 per mmBtu), the European Union wants to extend its emergency price cap introduced in February 2023 amid fears of spikes on the back of sabotage in the Baltic Sea and the Israel-Palestine conflict.

As Guyana increased its government take from oil production at the recently auctioned offshore acreage, the first competitively held lease in the country, ExxonMobil (NYSE:XOM) announced it would not sign the PSA in its current form.

Simultaneously to Saudi Aramco’s storage negotiations with India, South Korea’s KNOC signed a deal with Saudi Aramco (TADAWUL:2222) to store 5.3 million barrels of crude at its storage facility in Ulsan, to be used in force majeure events.

Argentina’s oil stocks have tumbled after the current economy minister Sergio Massa emerged as the frontrunner of the presidential ballot against Javier Milei, with YPF (NYSE:YPF) down 7% on Monday and Pampa Energia shedding 4% the same day.

Prices of copper plunged to $7,850 per metric tonne this week, the lowest since November 2022, amidst spiking US Treasury yields foreshadowing manufacturing woes as well as rising stockpiles of the transition metal in LME-tracked warehouses.

China’s national oil and gas company PetroChina (SHA:601857) completed the oil market’s first cross-border transaction in Chinese yuan, settled through the Shanghai OGTC, buying a 1-million-barrel cargo from an undisclosed seller.