Oil Prices Inch Lower On Hot Inflation Data

Crude prices fell on Tuesday morning, ahead of the weekly crude inventory reports, as August inflation data came in hotter than expected.

Despite the drop-off in European spot prices, the cost of natural gas remains prohibitively high, paving the way for global gas-to-oil switching in the power generation industry.

– Refiners and energy-intensive industries are already adding some 350,000 b/d of incremental oil demand, coming from the burning of fuel oil and other oil products (instead of gas).

– According to Platts Analytics, further fuel switching could boost oil demand by another 300,000 b/d in Q1 2023 when gas prices are expected to peak amidst curtailed Russian supply.

– Right now, benchmark European and Asian LNG prices are five to six times higher than high sulphur fuel oil values, meaning most power generation companies avoid using gas whenever possible.

Market Movers

– The largest independent energy trader in the world, the Netherlands-headquartered Vitol Group has reportedly made $4.5 billion in profits over H1 2022, more than in the entire (record) year of 2021.

– Leading US LNG exporter Cheniere (NYSEAMERICAN:LNG) will ramp up its share repurchase program by $4 billion for additional three years, with 2022 EBITDA estimates moving up to $11.0-11.5 billion.

– In arguably the last divestment move before the Brazilian elections this October, Norway’s fertilizer giant Yara (OSL:YAR) is rumored to buy the fertilizer unit of Petrobras (NYSE:PBR) for an undisclosed sum.

Tuesday, September 13, 2022

Inflation is rearing its ugly head again, with U.S. consumer prices gaining 0.1% month-on-month in August, just when the analytical community and US Federal Reserve alike expected a month-on-month dip. This will only bring grist to the mill of the Fed, meeting next week to discuss further interest rate hikes. With ICE Brent dropping to $93 per barrel after several consecutive daily increases, demand woes in the U.S. and China seem to be temporarily overpowering upside factors such as continuously shrinking global inventories. But there the bullish sentiment should still be there with U.S. Secretary of State Anthony Blinken claiming the Iranian nuclear deal is unlikely in the near term (most probably a coded way of saying until mid-term elections) and that Iranian proposals were a step backward.

Iran Deal Fades as Europe Loses Faith. In a joint statement issued by three European countries privy to nuclear talks with Iran, the governments of France, Germany and the UK criticized Iran for not seizing the opportunity presented by the EU draft deal and that there remain ‘serious doubts’ about Tehran’s intentions.

South Sudan to Leave OPEC+. A first sign of discontent within the ranks of OPEC+ members, South Sudan threatened to leave the oil group if it stands in the way of its ambitious production ramp-up that sees output increasing from 150,000 b/d now to 230,000 b/d by 2024.

India May Need 28 GW of New Coal Capacity. CEA, India’s advisory body to the power ministry, claimed India may need up to 28 GW of new coal-fired capacity by 2032 to meet soaring power demand, expected to double over the upcoming 8 years from the current 404 GW.

Diesel No Longer That Attractive. The U.S. and European diesel contracts have seen the biggest selloff since early March, both totaling -8 million barrels and reversing three consecutive weeks of middle distillate purchases as fears of slowing growth sap confidence across the Atlantic.

Source: Oilprice.com


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