There can be little wonder that oil prices have ground themselves into the doldrums for even the most pressing of geopolitical drivers is showing duplicity. One side of its face shows concern on how Houthi attackers, despite the allied airstrikes into Yemen, still manage to launch against shipping in the Red Sea with the latest attack on an American-flagged vessel. While on-land infrastructure and production are unaffected, the elongated shipping times highlight short-term grade tightness that might have been previously ignored. The other side of the face is that President Biden hopes to secure a ceasefire by next Monday according to various newswires. Reuters up the ante this morning reporting the US leader announcing Israel has agreed not to engage in military activities during Ramadan in the Gaza strip, with Ramadan’s observation starting Monday, March 10. Such opposing news within the same political oil price consideration can only be confusing.

Some of the grades finding support are those of a sour nature in the US. The US DOE said on Monday that it will refill SPR with 3 million barrels of similar quality. Sour crudes might attract even more attention as sanctions by the US on Venezuela are set to resume in April if the South American country does not adhere to the demands by the US on allowing an opposition candidate to run in presidential elections. Staying with oil-stuffs that are about to be withdrawn from the market, and according to Reuters, Russia in an announcement this morning said there would be a 6-month ban on Gasoline exports from March 1. Referring to rising domestic demand not only from retail customers but agricultural, the moratorium is caused by planned refinery maintenance.

Keeping bulls and bears penned is the slew of data due this week which will see the ever-ebullient equity market storm troopers rush to buy, then rush to sell and sometimes both in the same day. Today, will see US Durable Goods and CB Consumer Confidence. Tomorrow, RBNZ rate decision, Final Consumer Confidence from Europe, Q4 US GDP, and speeches form FED’s Bostic, Collins and William all of who are more than capable of sending shivers or glow to markets. Thursday, France and Germany CPI, US PCE Price Index, US Jobless claims. Finally on Friday, NBS/Caixin China Manufacturing PMI, EUR CPI and US ISM Manufacturing PMI. There is also the small matter of yet another vote on a budget to stop a US government shutdown.

Given all this data to come, given the hydra of Gaza and given the chess piece demand and supply of the oil market at present, one can only conclude that oil market participants are glad of International Energy week and are away from their screens.
 

This market is still suffering from too much gas

The depressed state of Natural Gas markets continues to have a deleterious influence on oil prices and with a lack of anything close to a winter in the Northern Hemisphere, and the darker months nearly behind us, there does seem little on the horizon that will set a fire under the demand for the popular burner. The recent bounce by M1 Henry Hub Natural Gas from its all-time lows (apart from pandemic years) still leaves it $1.32 Btu below the 5-year average and along with Dutch TTF, the much-watched European marker, saunter along having halved their prices in the last 3-4 months. According to the EIA, at the end of the heating season (November 1 to March 31) in 2023, Gas inventories in Europe were 56% full, the highest on record. Stocks are clearly subject to change, particularly as forecasting predicts a cold snap in the next week or so, however, European gas storage is currently at 64.7% and therefore the 2023 record might just well be challenged and keep Gas prices in all their guises stifled.

The contemporary state of Gas interest does not chime with a recent report from Shell concerning future demand for LNG. Picking 2040 as a date when there is a global transitioning to greener energies, the oil-major sees LNG thirst increasing by 40% up and until that point. Demand is expected to reach between 625 and 685 million tonnes increasing from the 2023 figure of 404 million. Such a call does seem bullishly optimistic, for the nearby pressures on Gas and by default LNG will not abate very quickly. Ever since Russia invaded the Ukraine, LNG supplies had tightened globally as Europe replaced lost Russian gas supply with massive chilled-fuel imports with surprisingly great success and gas markets normalized much more quickly than expected. Of late, the weather has obviously been the presiding factor, but investment into new liquefying projects have accelerated production and been able thus far to sate the many areas of demand and what was once a tight Gas scenario has turned into a loose one as exampled above.

Analysis from the likes of Bernstein Research sees a real sea change and LNG could well be on the road to being a buyers’ market. Bernstein said the global tightness on the gas would enter its third year in 2024, but that good news was in store for gas buyers because over 140 million tonnes a year of new LNG supply would start to hit the market from the end of the year and for the next three years, representing more than 30 per cent of the existing worldwide market. This view is backed up by news in the last few days of an expansion plan by Qatar which would have been influenced somewhat by the US decision to pause approvals for new LNG terminals until after 2028 due to environmental considerations. Qatar’s production will increase by 85% from 77 million tons per year to 142 million tons by 2030. According to Goldman Sachs, quoted on Reuters, Qatari expansion will extend the "bearish cycle" which will loiter into the remainder of this decade as global capacity reaches half of the 2023 supply.

On the face it Qatar’s ambition looks questionable, yet the Gulf state’s existing exposure allows its aspiration particularly in the absence of any future threat from increased American supply. As pointed out by Bloomberg, it already has a 27-year term deal with China and currently boasts contracts with European oil giants such as Total and ENI. We find any sort of demand from China hard to justify, but its systematic conversion to greener energies, and to achieve the government’s target for gas to reach 15 per cent of the energy mix, will involve a stepping procedure in which coal-fired power stations will be phased initially to the benefit of gas and that amount of ‘switch’ will increase LNG imports. The state of industrial demand, manufacturing, geopolitical strife and high interest rates makes us loth to predict what gas prices and LNG production will be tomorrow, let alone in 5, 10 or 15 years. Shell, Qatar and others see long-term positives for gas prices, we see any news of increased gas availability as a short-term powerful hindrance to any oil price rally.

Overnight Pricing

john.evans@pvm.co.uk

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