Oil Falls over Uncertain Demand Outlook, Surplus Supply
The prices of crude oil fell on Tuesday over demand concerns amidst expectation of surplus supply in the global commodities market. Brent to $72.65 per barrel at the last look, while the US benchmark West Texas Intermediate also decreased to $68.69 per barrel.
Oil prices rallied yesterday with Brent setting almost 3.2% higher. A softening in the US dollar supported most of the commodities complex, ING commodities strategists said in a Tuesday note.
Analysts reiterated that geopolitical risks between Russia/Ukraine have increased after the US said it would allow Ukraine to carry out long-range missile strikes on Russia.
Analysts warned that President-elect Donald Trump’s focus on tariffs could disrupt international trade, adding to the pressures on asset prices and the commodity market.
A potential trade war between the U.S. and China, the world’s largest oil consumers, coupled with persistent concerns over China’s economic activity, keeps risk perception elevated in the region.
The Norwegian company Equinor announced that it had stopped production at the Johan Sverdrup oil field due to a power outage.
The power outage caused about 755,000 barrels of daily production to stop. An Equinor spokesperson stated that efforts were ongoing to restart production in the field, though the exact date of operation remains unclear.
The outage at Johan Sverdrup, Western Europe’s largest oil field, fuels market players’ concerns about supply shortages.
Also, oil production in Kazakhstan’s largest oil field, Tengiz, operated by US Chevron, declined by about 30% due to planned maintenance work.
Washington Post reported that the Joe Biden administration has granted Kiev permission to use long-range American weapons on Russian territory for a limited time, according to two senior US officials.
The crude oil market will be in surplus through 2025, analysts said. However, the size of the surplus depends on what OPEC+ decide to do when it comes to output policy for next year, ING stated.
In natural gas markets, European prices only edged a little higher yesterday with TTF settled 0.75% up on the day despite Gazprom deciding to stop supplying gas under its long-term contract with the Austrian energy company, OMV.
The halting of this supply was due to OMV saying it would not pay Gazprom for imports to recoup EUR230 million in damages it was awarded in an arbitration.
OMV said that potentially 5TWh per month of supply is at risk, which is roughly 500mcm (or less than 20mcm/day). However, while Gazprom has stopped supplying OMV under its long-term contract, analysts said they have not seen any meaningful drop in Russian pipeline flows to Europe yet, ING said.
This suggests that Gazprom is still selling into the spot market in Europe. It is still important to remember that all Russian pipeline flows transiting Ukraine will likely stop at the end of this year when Gazprom’s transit deal with Ukraine expires, which is equivalent to around 15 bcm of annual supply. #Oil Falls over Uncertain Demand Outlook, Surplus Supply Naira Plummets to N1690/$ after CBN Priced Spot Rate High
