Bad news is piling up on oil markets and traders aren’t liking it, pushing prices down sharply last week for losses of between 4% and 6%.
There’s the upsurge in Covid Delta cases across Europe and the US which has triggered concern about weak demand, a slowing in the tightening of monetary policy and delays to the expected jump in the need for fuel oil and jet fuel by cruise liners and airlines from 2022 onwards as the re-opening of international borders and travel becomes becomes harder, even for the fully vaccinated.
That all saw oil prices drop to a six-week low on Friday as the new Covid lockdowns in Europe especially sparked concerns about weaker demand running into 2022.
These fears came on top of concerns about too much oil, especially after the US, then China and finally Japan suggested they could all release of their reserve stocks of oil to put downward pressure on oil price.
As a result US West Texas Intermediate (WTI) futures sank more than 4% to a session low of $75.37, a price not seen since October 7. WTI settled at $US76.10, down 3.6% on the day and 5.7% for the week. Brent futures settled at $US78.89, down 4% for the week.
The fears about new lockdowns and Covid infections same at the end of a week where we saw the downward revision of global demand forecasts by the International Energy Agency and the US threat to draw on its strategic reserves – in co-operation with China which in turn said it had been releasing some of its reserves last week.
On Saturday Japan’s Kyodo news service reported that the country’s government was considering releasing oil from its reserves in response to rising crude oil prices.
It would be the first time for Japan to release oil reserves for the sake of lowering prices, although the country in the past has tapped such reserves when it faced natural disasters and geopolitical risks overseas, Kyodo said which did not source its report.
Late Saturday the government confirmed it was examining a reserves release as Kyodo reported that Prime Minister Fumio Kishida had signalled his readiness to counter oil price hikes following a request from the United States.
Reuters pointed out though that Japan may struggle to justify such a move, as under its own laws the country can release reserves only at a time of supply constraints or natural disasters, but not to lower prices.
“We’re proceeding with consideration as to what we can do legally on the premise that Japan will coordinate with the United States and other countries concerned,” Kishida told reporters on Saturday night, Reuters reported.
To help combat the adverse impact of the oil price surge, Prime Minister Kishida on Friday unveiled a record $US490 billion stimulus plan including measures to counter higher oil prices.
It plans to subsidise oil refiners in the hope of capping wholesale gasoline and fuel prices to ease the pain to households and firms from rising oil costs.
The Biden White House Friday again pressed the OPEC+ producer group to maintain adequate global supply, days after the administration revealed talks with some of the world’s biggest economies over potentially releasing oil from strategic reserves to quell high energy prices.
The Biden administration has asked a wide range of countries, including China for the first time, to consider releasing stocks of crude.
White House spokeswoman Jen Psaki said the administration wants to “ensure that the OPEC member countries and OPEC as an organization meets the demand needs that are out there with the adequate supply. That is something we’ve pressed them on in the past.”
Those comments rattled oil trader confidence and added to growing fears that demand might fall short of rising supply, especially with Covid driven lockdowns spreading in Europe.
The IEA kept its forecast for higher oil demand largely unchanged from October at 5.5 million barrels per day for 2021 and 3.4 million barrels per day for 2022.
“As we head towards the end of the year, we are expecting continued strong growth in demand, but supply is finally on the rise,” the IEA said last week.
“So, OPEC+ is continuing to unwind their cuts but we are also seeing higher supplies from other producers outside of the group and so we’re seeing that the market is moving closer to balance.”
The IEA said it expected a rise of 1.5 million barrels a day in global oil output in the final three months of the year, with the US alone accounting for 400,000 barrels a day of this growth.
US production is running at around 11.5 million barrels a day at the moment.
Oil and gas rigs in the US rose by 7 to 563. Gas was steady at 102 rigs, data from Baker Hughes showed. In the same period of 2020, there were 76 gas rigs and three miscellaneous rigs in operation. Overall, there were 310 rigs operating a year ago.
The number of oil rigs operating in the US rose by seven to 461 last week, Baker Hughes said. A year earlier, the US had 231 oil rigs in operation.
The weakness saw oil stocks sold off on Friday with shares in Exxon down more than 4% and Chevron 2.2%, BP shares dropped 29% and shares in Shell fell 3.2% as it continues to be buffeted by the decision to end its dual stockmarket listing and concentrate its listing in London and drop the Netherlands.
Devon Energy shares fell 6.2%, and Hess fell about 5.7%. Baker Hughes and Diamondback Energy weren’t far behind, down more than 5%.
