Oil

Strong Fuel Demand Boosts Oil Prices

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Strong demand for oil products is helping to drag oil prices higher, although the risk of a U.S. default and the upcoming OPEC+ meeting are the two major factors oil markets are watching.

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Global jet fuel demand, however, is expected to remain below 2019 levels for now as efficiency gains and a slower rebound in long-haul travel, especially in Asia, limit the consumption upside for the fuel.

IATA estimates that new airplanes trigger fuel efficiency gains of around 2% per year and the pandemic has seen a widespread drive to replace older aircraft.

With international seat capacity now 10% below 2019 same-month levels, attesting to flights being on average shorter than before, a full jet fuel demand recovery to 8 million b/d isn’t expected until 2027.

Oil products seem to be dragging crude out of the quagmire before the OPEC+ meeting, with the strength in US gasoline futures lifting WTI and Brent to $72 and $76 per barrel, respectively. Should the ongoing debt ceiling talks between House of Representatives speaker Kevin McCarthy and President Joe Biden lead to a deal that prevents a government shutdown we might see a brief spike in oil prices, although attention seems to be gradually moving towards the upcoming June OPEC+ meeting.

Speaking at the Qatar Economic Forum, Saudi Arabia’s Energy Minister Abdulaziz bin Salman stated that OPEC+ will remain proactive and that oil speculators betting on prices to fall will be “ouching” again just as they did in April if they don’t mend their ways.

The recent G7 meeting in Japan’s Hiroshima included calls for more gas investments in the West to phase out dependency on Russian energy, angering climate activists that think the group is using the Ukraine war as an excuse for more fossil fuels.

Three years after its departure in 2019, Ecuador has been invited by OPEC to rejoin the ranks of the oil group as the country’s previous problem – exceeding agreed production quotas – became irrelevant as production started to stagnate.

Nigeria’s outgoing president Muhammad Buhari commissioned the 650,000 b/d Dangote refinery – set to become the continent’s largest and at a cost of 19 billion also the most expensive – but its real start-up is expected in late 2023, at best.

Germany’s economy minister Robert Habeck stated Berlin plans to earmark some €4 billion annually to subsidize electricity prices for energy-intensive industries, capping power prices at 6 cents per KWh despite the Finance Ministry’s fierce opposition.

Australia and the United States have agreed to treat the former’s domestic suppliers of critical minerals (such as lithium or rare earth metals) as domestic suppliers under the US Defense Production Act, as well as its hydrogen and ammonia companies.

After a Guyanese court ruled that US major ExxonMobil (NYSE:XOM) needs to provide additional insurance against potential oil spills, the Texas-based firm riposted it could halt production at its Liza One platform altogether if the court doesn’t backtrack.

China’s state-owned oil company Sinopec (SHA:600028) agreed on terms with Kazakhstan to build a gas-based petrochemical complex in the country’s Atyrau region, with the 1.275 mtpa ethylene capacity plant expected to have an FID next year.

Reacting to what it described as significant investor demand, the UAE’s national oil company ADNOC will be offering a larger stake in the upcoming IPO of its logistics and shipping unit L&S, potentially raising up to $800 million from the public offering.

SPGP, the largest oil union in Argentina, representing 25,000 workers in the country’s Vaca Muerta shale play, launched an indefinite strike to demand better working conditions, triggered by another incident that resulted in a worker’s amputated arm.

Norway’s national oil firm Equinor (NYSE:EQNR) indefinitely postponed its planned Trollving floating offshore wind farm that was supposed to power its Troll and Oseberg oil fields, citing inadequate availability of technology and rising costs.

Merely several weeks after a ceasefire with Saudi Arabia, the Houthi-led government in Yemen signed a deal with China’s state-backed company AntonOil, seeking to produce 300,000 b/d of oil as the Middle Eastern country did before its protracted civil war.

US carmaker Ford (NYSE:F) signed three long-term lithium supply agreements with Albemarle (NYSE:ALB), SQM (NYSE:SQM), and Nemaska Lithium, as lithium produced in the US or a country covered by a free trade agreement qualifies for IRA tax credit.

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