Global Oil Supply Disruptions Fail To Break Bearish Sentiment

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Supply-side disruptions and promising fundamentals appear to be unable to shake the recession fears that continue to weigh oil prices down.

While several banks and analysts believe oil prices are set to climb later this year, economic uncertainty continues to be the main factor for oil markets this week.

Whilst diesel consumption is usually the first to decline in recessionary times and we have already seen the first signs of that, gasoline demand has so far been robust in 2023.

US gasoline demand has trended some 100,000 b/d above year-ago levels and is expected to average 9.1 million b/d over the summer, though still 6% lower than the pre-pandemic norm.

Yet just as gasoline cracks started decreasing in April, implied demand figures issued by the EIA saw a whopping 900,000 b/d decline last week, raising fears that summer demand will not be as bright as previously thought.

Some demand upside might come from lower prices if refinery overcapacity does indeed materialize, with 2 million b/d of new downstream capacity hitting the markets this year.

Canada’s wildfires seemed the textbook example of a supply-side disruption diluting the macro gloom of recent days, with at least 30 fires across the oil-rich province of Alberta still out of control, raising the fears of even more oil being shut in. However, the slowing down of Chinese exports to an 8.5% pace of year-on-year growth as well as imports plummeting, with both the US and the EU recording a year-on-year decline, erased most of the gains we saw earlier this week, putting ICE Brent closer to $76 per barrel again.

Canada’s leading oil-producing province has been in a state of emergency since Saturday as wildfires are running rampant, prompting oil firms to shut in at least 320,000 of boe/day of production, about 3% of the country’s total output.

Republican congressmen have asked the Government Accountability Office (GAO) to investigate whether the Biden administration’s release of about 250 million barrels undermined the US’ energy security by structurally damaging SPR pipelines and caverns.

The Emirati national oil company ADNOC has kickstarted the bidding process for a major project expansion on the Lower Zakum oil field, seeking to ramp up capacity by more than 60% to 520,000 b/d in the next four years.

US billionaire Warren Buffett said that Berkshire Hathaway (NYSE:BRK) is not planning to acquire Occidental Petroleum (NYSE:OXY) despite having accumulated a 23.6% stake, adding the company has got the „right management” in place.

Demand for affordable Iranian diesel has been soaring in inflation-ridden Pakistan, unchecked by customs authorities that do not track products flowing into the country, hurting domestic refiners as imported fuel sells $0.2/liter cheaper than the domestic.

Shell’s (LON:SHEL) Deer Park petrochemical plant, located in a Houston suburb, burned for three consecutive days after an explosion in an olefins processing unit, although the company stated there were no harmful levels of chemicals in the air.

Australia’s Treasury is bent on increasing taxes paid by the offshore LNG industry, hoping to rake in some $1.6 billion over the next four years by ramping up the Petroleum Resource Rent Tax, prompting oil companies to warn of taxation overreach.

Several days before the presidential elections, Turkey’s state oil firm TPAO announced the discovery of a 1-billion-barrel field in the southeast province of Sirnak, saying peak production could be 100,000 b/d, more than the country’s current output of 70,000 b/d.

The Hammerfest LNG plant, Norway’s only export liquefaction plant equivalent to 5% of the country’s gas exports, suffered a compressor failure last week and will remain offline until at least May 19 in a blow to its operator Equinor (NYSE:EQNR).

The US pipeline regulator PHMSA announced new rules for reducing methane leaks, seeking to eliminate 1 million tonnes of methane emissions by 2030, requiring midstream firms to establish advanced leak detection programs and optical surveying.

China’s national oil company Sinopec (SHA:600028) started drilling the deepest oil and gas well in Asian history, with the Yuejin 3-3XC well expected to reach a total depth of 9,472 meters in the Xinjiang Uyghur Autonomous Region.

Global copper smelting activity decreased to the lowest level since March 2021 as satellite data from metal processing plants indicated Central Asian and Turkish smelters were down and Indonesia’s PT Gresik plant was down for a 75-day shutdown.

Spot Asian LNG prices have fallen below $10 per mmBtu this week, the lowest in two years, as China’s weak demand for liquefied gas and high inventories in South Korea and Japan have capped buying activity in the region.