Fear of recession grips oil markets

Oil prices are back to where they were before Russia invaded Ukraine, suggesting that a global recession and the destruction of demand are now the central focus of traders.

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Friday 5 August 2022

It’s hard to escape the fact that almost every news story and analysis seems to indicate that a recession is on the way. Whether it’s the Bank of England’s warning of a five-quarter recession, or OPEC+’s inaction on oil production, the bad omens keep coming. This has inevitably impacted oil prices as well, almost falling back to where they were before the start of the Russian invasion, with an ICE Brent hovering around $96 a barrel. For the first time in weeks, oil futures contracts began to reflect expectations of a weak winter, with monthly spreads halved week-over-week. We are still well behind, but it doesn’t seem as drastic as before the summer.

OPEC+ raises target for September by a paltry 100,000 b/d. OPEC+, meeting to set its collective production target for September 2022, has agreed to its lowest monthly quota increase since 1986 at 100,000 b/d, meaning the oil group is still assessing recession risks to take more radical steps .

Huge Kazakh oil field shut down amid gas leak. Crude oil production at the 13-billion-barrel Kashagan field in Kazakhstan was completely halted mid-week over fears that pipelines connecting the shallow-water platforms to shore could leak, likely due to equipment corrosion.

UN head calls for taxing ‘greatly greedy’ oil UN Secretary-General Antonio Guterres called on governments worldwide to tax and redistribute these excessive profits, saying oil companies have made immoral profits on the backs of the poorest people.

OPEC promises to have more capacity for the winter. Saudi Arabia and the United Arab Emirates are apparently ramping up spare production capacity to meet significant demand in the event of a winter supply crisis.

Diesel stocks indicate trouble ahead. While markets in general focused on rising US gasoline inventories, middle distillate inventories reached critically low levels, with this week’s data showing another 2 million barrels decline, with total inventories exceeding 21 million barrels. below the corresponding point in 2008.

China doubles on ultra-high-voltage lines Connecting the far western regions of China, where most of the solar and wind-producing factories are located, to major coastal cities, the State Grid expects to invest an additional $22 billion in ultra-high voltage power lines this year, boosting the prospects for copper and aluminum. for H2 will increase. .

Russian government gives Sakhalin-2 to Gazprom. By a decision of the Russian government issued this week, Gazprom received 50% of the Sakhalin-2 LNG project, with the remaining shares being distributed among the project partners who reapply for their share, with Shell (LON:SHEL) who wants to sell his 27.5% stake before it’s too late.

India wants to boost fuel exports Just a month after introducing fuel export taxes, the Indian government has halved export taxes on gasoline, jet fuel and diesel, while simultaneously raising taxes on domestically produced crude oil and raising $30 a barrel of local production.

Germany faces legal problems with gas tax. The German government acknowledged that it would have to change its recently passed energy security law, as it could not impose the oft-cited gas tax on consumers with fixed-price gas contracts, about a quarter of all deliveries.

Bad news will now come more often in the UK. As the Bank of England expected the cap on energy bills to rise to £3,500, UK energy regulator Ofgem announced it would review the country’s price cap on a quarterly basis rather than twice a year.

Russia forbids western companies to sell energy interests. The Russian government has banned companies from so-called unfriendly countries from selling shares in major energy projects until the end of the year, implying that US large ExxonMobil (NYSE:XOM) will not be able to get out of Sakhalin-1.

Singapore bans Glencore from Bunkering Pool. The Maritime and Port Authority of Singapore has banned a Swiss-based merchant wholesaler Glencore (LON:GLEN) of the country’s bunkering market for two months following a chlorine pollution accident in March, which drastically curtailed fleet availability.

Chesapeake seeks sale of assets in South Texas. US shale-focused oil company Chesapeake Energy (NYSE:CHK) is reportedly considering a sale of its Eagle Ford shale assets amid an ongoing shift to natural gas production, possibly under pressure from private equity firm Kimmeridge Energy for change.

Nickel smelting drops to 5 year low. Satellite images indicate that global nickel smelting has fallen to its lowest point in more than 5 years of data tracking, with high power prices slowing activity in Europe and Africa, while China continues to be hampered by a weak demand recovery after lockdowns.

By Josh Owens for Oilprice.com

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