China’s Covid strategy keeps oil prices in check

As oil prices rose Tuesday morning after posting their first monthly gain since May, worrisome industrial data out of China is dampening prices.

Chart of the week

Benefits

– While the American oil majors such as ExxonMobil (NYSE:XOM) and Chevron (NYSE: CVX) Seeing their stock prices hit all-time highs, climbing 75% and 52% in 2022 to date, the Biden administration may be increasingly tempted to pressure them for funds.

– The world’s five largest oil companies posted net profit totaling nearly $60 billion in the third quarter of 2022 alone, raising the risks of government intervention, including a US windfall tax (see below).

– Chevron has previously warned that raising taxes on oil production will only reduce production, a risky development at a time when upstream investment is still more than 45% below its 2014 peak.

– Even though the motion faces headwinds, Senate Democrats have already suggested institutionalizing a gasoline export ban whenever the domestic domestic price hits at least $3.12 per U.S. gallon over averages of the previous seven days.

market movers

– Exceeding analyst forecasts, Saudi National Oil Company Saudi Arabia (TADAWUL:2222) reported net income of $42.4 billion in the third quarter, nearly 40% higher year-over-year and slightly below record second-quarter results.

– Brazilian state-controlled oil company market shares Petrobras (NYSE:PBR) fell nearly 10% after Lula da Silva won the country’s second round of presidential elections by a narrow margin.

– American oil major Conoco Phillips (NYSE: COP) will be the third and final international partner in Qatar’s 16 mtpy North Field South LNG project, having received a 6.25% stake (down from the 9.375% stake of TotalEnergies and Shell).

Tuesday 01 November 2022

Oil prices posted their first monthly gains since May, with ICE Brent ending October just below $95 a barrel. However, relative strength has recently been marred by China’s lingering woes, with its industrial and services activity in October seeing a huge month-on-month decline, underscoring the pain and insecurity that the zero policy -Covid continues to cause in the country.

Failure of the Ukrainian grain agreement negotiated by the UN. Global wheat prices soared 5-6% following the collapse of the Black Sea Grains deal which renewed Ukrainian grain shipments as Russia suspended its participation in the deal after a drone attack on its fleet in Crimea.

The White House is considering a tax on oil windfall profits. US President Joe Biden has called on oil and gas companies to stop “profiteering from war” and use their record profits to reduce the cost of transportation fuels for Americans, implicitly threatening them with a windfall tax if they don’t. weren’t doing it.

OPEC truly believes in oil markets. In its 2022 World Oil Outlook, OPEC raised its medium to long-term oil demand forecast, anticipating further growth of 8 million b/d by 2030 to 108.3 million b/d, which contrasts sharply with the pessimistic predictions about fossil fuels. published last week by the IEA.

The east coast of the United States feels the pressure of diesel. With US East Coast diesel inventories half of what they would normally be at this time of year, retail prices in PADD1 (a huge heating oil demand center ) have recently climbed above $6 per gallon, about $1.3/USG above retail prices in Texas.

Nigeria unveils its first real auction in 15 years. The Nigerian government plans to auction off seven deepwater offshore oil blocks in the outer waters of Lagos next year, more than 15 years after it last launched market auctions for new acreage (at the time, it was 45 oil blocks).

No restart of Freeport LNG before checks. U.S. federal regulators have notified Freeport LNG to provide required information for the planned plant restart after a pipeline explosion in June 2022, with time running out for the planned liquefaction restart in November.

Ecopetrol board chaos weakens Colombian peso. State-controlled Colombian oil company Ecopetrol (NYSE: CE) replaced the head of its board of directors just a day after his appointment, raising the risks of further state interference and hitting the Colombian peso hard last week.

EV battery production faces headwinds. A recently released S&P Global Mobility report said electric vehicle battery producers face an uphill battle to secure raw materials, as demand for lithium-ion batteries is expected to rise to 3.4 TWh by 2030, in distinguishing between lithium, nickel and cobalt.

The United States wants broader export controls on China. Ongoing US-EU trade talks have also touched on Europe’s increasingly difficult cooperation with China, with US Trade Representative Katherine Tai advising the EU to implement an export control regime, a path that Europe is still reluctant to take.

The price cap in Russia remains an enigma. The US Treasury Department has indicated that Russian oil vessels loaded forward and unloaded at destination before January 19, 2023 will not be subject to the price cap, which, curiously, eases the pressure on Russian cargoes this month.

The United States will build the very first Polish nuclear power plant. The Polish government has announced that the American nuclear company Westinghouse, which will soon be sold to the Cameco (NYSE: CCJ) for $7.9 billion, will build the country’s first nuclear power plant with a supposed commissioning date of 2033.

Colombia displays oil cooperation with Venezuela. Colombian President Gustavo Petro arrived in Caracas today for his first official visit, seeking to discuss the relaunch of three exploration and production projects in Venezuela that could see Ecopetrol (NYSE: CE) and PDVSA work together.

The EV-Metals partnership that was too good to happen. american manufacturer Tesla (NASDAQ:TSLA) was in talks with Glencore (LON:GLEN) to buy up to 20% of the mining and trading giant, in a move that would secure the supply of critical metals for electric vehicles, but the deal fell through due to Tesla’s environmental concerns.

By Michael Kern for Oilprice.com

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