Chinese demand destruction counteracts the risk of a Russian oil ban

While lockdowns in China are causing significant devastation to demand and adding downward pressure on oil prices, the EU’s threat to ban Russian oil imports has the potential to send prices significantly higher.

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Friday, April 15, 2022

China’s decline to an almost nationwide COVID lockdown has triggered the first large-scale blockade of demand in 2022, in which about 45 cities, which account for 40% of the country’s economic output, are under some form of mobility reduction. On the other hand, the EU continues to consider banning Russian oil imports, pushing the Brent complex even higher compared to other regional benchmarks. ICE Brent-front-month futures have closed the week just over $ 110 per barrel mark, but uncertainty about both supply and demand will ensure volatility in the coming days.

Henry Hub jumps to 13-year highs. Amplified by an unusually small gas inventory built up at this time of year and a recent decline in nationwide U.S. production, U.S. Henry Hub futures rose to their highest level in 13 years at $ 7.3 per share. mmBtu, marking the strongest weekly gain since August 2020 and bringing 2022 to date increase to almost 100%.

Putin warns of diversion of energy flow. Russian President Vladimir Putin said Moscow would divert its energy to the east and build new infrastructure towards Asia, arguing that unfriendly regimes in the West were driving prices up for themselves despite their dependence on Russian currents.

Chinese refineries lower prices on COVID demand falls. China’s refineries are cutting back on refinery operations on the largest scale since the start of the pandemic in early 2020, reducing intake by 900,000 b / d in April (equivalent to 6% of domestic demand), while the country continues to struggle with COVID -lockdowns.

EU ban on Russian coal raises prices. After Brussels agreed on a phased ban on Russian coal, the regional benchmark API2 rose by about 15% week-on-week and is currently trading at around $ 320 / mt, further supported by the EU ban on Russian wood, which will probably add even more a layer of coal demand in Europe.

Texas Oil Fields faces the worst fire risk in a decade. With nearly 85% of Texas suffering from drought for several months, leaving the grass dry and ready to burn, the U.S. Storm Prediction Center warned that parts of western Texas are at extremely critical fire risk. This is a risk for shale fields in the Midland and Odessa basins.

Italy’s ENI to increase Egyptian gas production. In another move aimed at increasing the supply of liquefied natural gas to Europe, the Italian energy giant has ENI (NYSE: E)signed an agreement to increase gas production in Egypt, especially in the super-giant Zohr field, resulting in about 3 billion cubic meters of LNG exports more this year.

Singapore probe finds source of HSFO pollution. The Singapore Maritime and Port Authority said their preliminary results showed that the chlorinated high-sulfur contaminated fuel oil, which subsequently spilled the bunker fuel of about 200 ships, was supplied by the trading company Glencore (LON: GLEN). Related: The world’s richest has taken a $ 400 billion wealth cut in the midst of the Ukraine crisis

New York’s lawyer examines US gas prices. New York Attorney General Letitia James has launched an investigation into whether the oil industry has been dealing with gasoline prices, just a week after US Big Oil representatives testified in Congress that no company sets the price for gasoline.

New Petrobras CEO promises consistency. Jose Mauro Coelho was formally elected new CEO of Brazil’s state – controlled oil major Petrobras (NYSE: PBR)who promised to maintain the company’s pricing policy, which contradicts the Bolsonaro administration’s ambition to see fuel prices lower.

Saudi Arabia is not opposed to the fragmentation of the disputed gas field. Saudi Arabia and Kuwait invited Tehran to hold talks to determine the eastern border of the Durra natural gas field, which the two Arab Gulf monarchies wanted to develop jointly, less than a month after Iranian officials called the Saudi-Kuwaiti deal illegal.

Germany Mulling Fourth Floating LNG Terminal. After securing three FSRU LNG projects through German energy companies RWE (FROM: RWE) and Uniper (ETR: UN01)The German government is now considering renting a fourth floating unit to diversify its gas supply away from Russia.

Nigeria approves $ 10 billion in fuel subsidies. The Nigerian government approved a $ 10 billion petrol subsidy, which increased the state subsidy tenfold as high global prices and lower domestic production (annual plan downgraded to 1.6 million b / d) continue to push up domestic fuel prices.

Japan wants more LNG investment. Japanese companies plan to step up their investment in liquefied natural gas upstream projects to increase emissions, with the consequences of the war between Russia and Ukraine intensifying competition for spot-LNG cargo globally, forcing Asian buyers to outbid Europe.

Wind power overtakes coal and nuclear power in US electricity production. For the first time ever, wind power became the second largest source of electricity production in the lower 48 states at the end of March, overtaking both coal and nuclear power and totaling more than 2,000 GWh.

By Tom Kool for Oilprice.com

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