Development of the price of oil
The price of BRENT oil decreased from approximately $ 69.39 per barrel at the end of the trading day on 5/3/2021 to approximately $ 68.87 per barrel at the end of the trading day on 12/3/2021 and the price of a WTI barrel decreased from approximately $ 66.09 per barrel at the end of trading at 5 / 3/2021 to approximately $ 65.61 per barrel at the end of the trading day on 12/3/2021. This small drop in price came after the price of oil rose sharply after the decision of the OPEC + group to continue the strict production quotas of most of the group members and also after one of the major terminals for oil exports in Saudi Arabia was attacked by the Houthis.
Global supply
Saudi Arabia has raised the price of oil to be delivered in April to customers in Asia and the US. This move comes after OPEC +’s decision to continue stricter production quotas, along with a continued voluntary cut of about 1 million barrels of oil per day, from Saudi Arabia’s oil production in April. That move points to Saudi Arabia’s assessment that global oil demand will continue to grow, so there is room to raise the price, and that the oil market is expected to continue to tighten in the near term.
Russia’s deputy prime minister said the OPEC + production quota agreement was good for Russia. While the production quotas of the rest of the group remained tight, Russia and Kazakhstan were given relief in production quotas. Russia’s oil production in April is expected to be 890,000 barrels higher per day compared to May 2020, when the OPEC + Group’s current production quota agreement came into force. Russia has raised its oil production so far in March and has almost reached the quota allocated to it by the OPEC + group even though its production quota has been expanded. Between March 1 and March 11, Russia pumped about 10,174 million barrels of oil a day. This level is about 79,000 barrels higher per day compared to its oil output in February.
Petron, the largest oil company in the Philippines, plans to resume operations in the refineries in the second half of the year, which ceased operations in May 2020. Seen on the horizon.
U.S. oil inventories rose sharply in the week ending March 5, 2021, due to U.S. refinery activity remaining low even though it began to recover after the extreme cold in the Gulf of Mexico in the U.S. and led to a freeze on transmission infrastructure. Refining rose from about 56% to about 69%, but this rate is lower than the utilization rates that were before the extreme weather in mid-February, which stood at about 83%. Accordingly, the weekly oil report of the EIA (US Energy Agency) “B) indicates an increase of about 13.8 million barrels in commercial inventory in the week ending March 5, 2021, which occurred despite the decrease in net imports. This increase brought the commercial oil inventory in the US to 498.4 million barrels, level About 6% higher than the average level in this period in the last five years.
The recovery of US refineries is occurring when refining margins are at their highest level since the summer of 2019, following the extreme weather in the Gulf of Mexico in mid-February which hit and halted some refineries and damaged equipment and infrastructure that is expected to take longer to repair. Led to a temporary reduction in the supply of oil distillates in the US. At the same time, refining margins in diesel production in Europe have become low due to existing surpluses on the continent that have not been severely affected by winter weather as parts of the US have been hit. Diesel in Europe at $ 4.32 a barrel, the lowest level since November 25, 2020.
The EIA estimates that oil shale production in the US is expected to rise to the highest level since 2019, pre-crisis, due to rising oil prices and stabilization at a high level, which increases the viability of shale oil production. The EIA has raised its production forecast U.S. oil, and estimates that by 2022 production will total about 12 million barrels a day.
Global demand side
Demand for vehicle fuel in the U.S. continued to recover and rose to 8,726,000 barrels per day, the highest level since mid-November 2020, due to drivers returning to roads with the passing of extreme weather in the Gulf of Mexico and the central U.S. leading to a sharp drop in demand. Demand for jet fuel, on the other hand, has fallen sharply in the past week to 890,000 barrels a day, as a result of the slow recovery of the aviation industry.
Road traffic in some U.S. cities rose in February, which may be an early sign that fuel demand for transportation is expected to continue to recover over the coming months. Traffic on seven toll bridges in the San Francisco Bay Area rose 13 percent in February from January. York seems to have had lower traffic in February than January, due to the snow that was in the city which caused people to stay at home and avoid traveling.
India’s oil distillate consumption fell by 5% in February in annual terms, due to rising oil prices, and India consumed 17.2 million tonnes of oil in February this year compared to 18.1 million tonnes in February 2020. This decline is the sharpest recorded since August 2020. In addition, High oil prices, coupled with the recent volatility in prices and the rising price of Saudi Arabia’s official selling price, are hampering the activity of Asian refineries in particular against the background of their low refining margins. As a result, India, which is the third largest importer of oil, is trying to diversify its oil resources after in the past India has already tried to diversify its energy sources and reduce its dependence on the Middle East. According to the chairman of India’s energy company, Hindustan Petroleum, over the past five years, India’s oil imports from America have risen from about 0.5% to about 6% of India’s total oil imports.
The increase in the export of fuels by traders in China after the Chinese New Year holiday, led to a significant increase in sea freight activity and the number of leading ships fuel and diesel has increased recently. This increase is due to the high inventory of petroleum distillates in China, which is hampering the continuation of activity in the sector, as it is difficult for traders to find places to store fuel. For example, oil inventories at seven ports in China’s Shandong Province rose 8.8% (w / w) last week to 49.4 million barrels, the highest level since February 7, 2020, which also led to rising storage prices.
The natural gas economy
The price of natural gas in the US (Henry Hub) has continued to fall slightly in the past week and reached $ 2.67 per MMBTU. However, the price remains relatively high and we estimate it will remain high due to the tight market in the Gulf of Mexico. The EIA has reduced its gas production forecast In the U.S. in the first quarter of the year at 710 MMCF per day to 97.97 BCF per day, but it raised the forecast for U.S. natural gas production in the second quarter by 630 MMCF per day to 98.58 BCF per day.
The price of natural gas in the UK (NBP) and the Netherlands (TTF DA) in the spot market has risen in the last two weeks against the background of rising oil prices.
This increase comes after two months of declines in European natural gas prices and was moderate due to the mild winter in Europe which curbed demand, alongside a decline in natural gas consumption for electricity generation, as wind power generation has risen recently. In our view, demand for natural gas is expected to rise in Europe due to the expectation that the weather will remain cold, alongside a decline in wind power generation, which will support increased electricity generation using natural gas.
Expect medium-term
Continued maintenance of OPEC +’s stringent production quotas, along with continued voluntary cuts in Saudi Arabia’s million oil production per million barrels per day are expected to support high oil prices in the near term and also support a further reduction in global oil inventories. Oil prices are expected to be sensitive in the near future to the degree of compliance of OPEC + members with production quotas, in which there may be deviations as high oil prices increase the viability of deviations of some of the group members with an emphasis on Iraq.
The volume of oil production in the United States is important, as current oil prices greatly increase the viability of increasing oil production through oil shale. However, an increase in U.S. oil production is not expected in the coming weeks and if there is such an increase it will only be felt later. This year. The changes in oil production are expected to be relevant in the medium term and to a lesser extent in the near term. The EIA estimates that US oil production will rise to about 12 million barrels per day by 2022. If there are no unusual developments in the market, with an emphasis on the supply side of OPEC + producers, this increase in US oil production is expected to prevent oil prices from rising further. The medium.
It seems that the current price increase is priced to an extent that includes the expectation of a deficit in the oil market and also an expectation of an increase in demand during the second quarter of the year. Advances towards diversified and growing global marketing of vaccines, which can be easily transported and brought to the developing world at a low price, are an important signal of the potential increase in demand for crude oil in the future, which seems to be embodied today in a high “consensus” of oil prices. Accordingly, futures contracts that are currently characterized by short-term optimism anticipate some decline in the price of oil in the medium and long term.