Oil Prices Rise as Supply Side Issues Return

Oil Prices Rise as Supply Side Issues Return

The correction of crude oil prices appears to have ended as both Brent and West Texas Intermediate turned positive and made further gains Monday, Commerzbank said in a Tuesday note.

The price differential between Brent and WTI has widened to more than $5 per barrel again, most likely due to the sizeable outages in oil production in Libya that tightened the supply of light, low-sulfur oil on the European market, the bank noted.

Meanwhile, oil supply in the US increased in the latest reporting week with output reaching the 12 million barrel per day mark for the first time since April 2020, according to the US Department of Energy.

Production is being driven by increased drilling activity, with the oil rig count rising continuously since the autumn of 2020, according to data from Baker Hughes.

The oil rig count totalled 584 active rigs in the last reporting week, the highest figure since March 2020. The high discount on WTI could boost US oil exports to Europe, according to Commerzbank.

US President Joe Biden said a US recession is not inevitable, even as the US Federal Reserve raised rates 75 basis points and hinted at more aggressive rate hikes that can put economic growth at risk, the bank noted. Fed Chair Jerome Powell is set to testify before lawmakers to outline his view on inflation.

Meanwhile, Libya said its output had recovered following disruptions to its operations, with daily production returning to around 800,000 barrels per day, up from 100,000 to 200,000 b/d, ANZ Bank said. The market remains wary of disruptions to Russian oil as European sanctions kick in.

Limiting Flaring, Cutting Methane Emissions from Oil and Gas Sector Can Provide Relief to Tight Markets, IEA Reports

Nearly 210 billion cubic meters of natural gas can be made available to markets through a concerted effort to eliminate non-emergency flaring and reduction of methane emissions from oil and gas operations, the International Energy Agency said in a recent report.

Substantial gas resources are being lost to flaring and leaks across the oil and gas supply chain and do not make it to market, the IEA said. Reducing flaring, venting and methane leaks would provide more immediate relief to current market tightness compared with investment in new supply, according to the agency.

To mitigate market tightness, some producers are working to explore and approve new projects, but these take many years to start producing and are not a good match for immediate energy security needs, the IEA noted.

On top of relief for tight gas markets, these measures would also cut greenhouse gas emissions. Methane emissions reduction is one of the best opportunities available for limiting the near-term effects of climate change while limiting flaring would cut local air pollution and reduce black carbon emissions, the IEA said.

If countries that currently export natural gas to the European Union were to implement these two measures, they could boost gas exports by more than 45 bcm using existing infrastructure, equivalent to almost one-third of Russian gas exports to the EU in 2021.

European Gas Prices Continue Rally as Countries Prepare for Extended Supply Halts from Russia

European gas prices extended gains with no relief in sight for diminishing gas flows from Russia, Australia’s ANZ Bank said in a Tuesday note. According to Gazprom Chief Executive Alexey Miller, there is no immediate solution for the technical issues involving the gas turbines needed for Nord Stream to properly function.

Gas flows have dropped sharply in recent days and the pipeline is currently operating at 40% of capacity, the bank noted. Gazprom has also chosen not to reserve extra capacity to ship gas to Europe via Ukraine at an auction on Monday, which indicated that Russian supplies may remain muted for longer, ANZ Bank said.

The European Commission said Russia is using energy for blackmail, the bank said. Germany’s economy minister assured that security supply is guaranteed but the situation remains serious, with the government asking consumers to lower consumption and announcing plans to rely more on coal-fired power plants.

Meanwhile, Italy could trigger its emergency gas plan, involving companies being asked to limit energy consumption, if Russia continues to curb supplies. #Oil Prices Rise as Supply Side Issues Return