With Russia’s invasion of Ukraine likely to degenerate into an extended war of attrition in eastern Ukraine, oil supply jitters in the market have calmed significantly. Furthermore, it appears that recent SPR releases – casually dismissed as a mere band-aid by many pundits – are having the desired effect. The oil price spike has stalled after President Biden announced the US would release 180 million barrels from the Strategic Petroleum Reserve over the next six months in the biggest release in SPR history, while threatening to impose penalties on domestic drillers , if they are not using federal oil permits. The 31 member nations of the International Energy Agency plan to release 120 million barrels from their emergency oil reserves, including 60 million barrels from a previously announced withdrawal from US stockpiles, marking the second coordinated release of emergency oil from the IEA in just over a month.
Front-month Brent has failed to see higher settlement for two consecutive days for the past three weeks and has only made a higher intraday high on two days for the past two weeks. Front-month Brent was trading at $98.48 a barrel on April 11, down $9.05/bbl and just $1.64/bbl from February 23, the day before Russia invaded Ukraine. while WTI fell $8.99/bbl. w on April 11 at $94.29/bbl.
Oil sanctions are yet to come
In a previous oil price update released a few weeks ago, commodities experts at Standard Chartered had warned that the market could soon face a 3 mb/d supply deficit, partly due to self-sanctions and also the possibility of an import ban on Russian oil. That certainly seemed within the realm of possibility given the global outrage that followed after grim images emerged from the city of Bucha, near Kyiv, including a mass grave and people tied up and shot at point-blank range.
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But StanChart has now toned down its bullish outlook somewhat. Experts now say that while sanctions against Russian oil are likely to remain high on the EU’s political agenda in the coming months, a full ban is unlikely.
Rather, according to StanChart, the EU is likely to consider various interim measures, including tariffs and the use of trust funds so that Russia cannot access all of its export earnings.
Still, experts do not seem to be able to agree on the Russian perspective.
StanChart forecasts an annualized decline of 1.61 mb/d, good for a sequential decline of 3 mb/d from pre-invasion levels; IEA expects Russian crude production to fall by 1.65 mb/d, EIA expects 56 kb/d growth, OPEC Secretariat has revised Russian production down by 530 kb/d, although it is still an increase 433 b/d forecast, lower than OPEC+ production cut back plan.
The latest weekly EIA data was slightly bullish. Crude stockpiles rose 2.42MB to 412.37MB, leaving them 85.94MB and 66.24MB below the five-year average year-on-year. The w/w change in crude oil balance was 493 kb/d towards lower inventories, mainly due to a 705 kb/d increase in crude oil exports; however, this was more than offset by a 1.332 mb/dw/w swing in the crude adjustment period towards higher inventories. The EIA estimate of US crude supply rose 0.1 mb/dw/w to 11.8 mb/d. The EIA forecast says crude oil production will average above 12 mb/d in July 2022 and rise above 13 mb/d in August 2023 to a new all-time high (the current monthly average high of 12.966 mb/d was set in November 2019) . ). See also: Russia is ready to sell oil at any price
The American Petroleum Institute (API) reported that crude inventories rose 7.8MB versus the DOE expectation of a 0.9MB build this week. Crude inventories in Cushing rose 0.4mb this week, according to the API. API’s reported gasoline stocks fell 5.1MB relative to the DOE’s expectation of a 0.4MB draw this week. API’s reported diesel stocks fell 5.0MB relative to the DOE expectation of 0.5MB this week. Overall, API showed a 2.3MB decrease in oil and oil products this week relative to the DOE expectation for flat inventories week-on-week. API numbers are bullish relative to DOE expectations.
Meanwhile, drilling activity in the US shale fields is picking up speed.
The number of US oil rigs rose 13 w/w to a two-year high of 546, according to the latest data
Baker Hughes poll. The number of oil rigs has increased by 51 in the last 10 weeks compared to 34 in the last 10 weeks. Texas accounted for most of the recent w/w increase in oil drilling activity, with the statewide number of rigs up 10 w/w to 305. Under the Permian basins
Delaware Basin activity increased by two to 169 rigs, Midland Basin activity increased by six to 131 rigs, and other Permian activity increased by a single rig to 30 rigs. The US gas rig count rose three w/w to a 29-month high of 141, with the Haynesville field gas rig count hitting a nine-year high of 70 rigs.
By Alex Kimani for Oilprice.com
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