Standard Chartered: All-Time-High Demand Will Push Oil To $100
U.S. oil futures slipped below $81/bbl on Tuesday after weak economic data out of China prompted surprise interest rate cuts by the People’s Bank of China. China’s industrial production rose 3.7% in July compared to a year ago, well below the 4.4% increase analysts had predicted while real estate investment in July accelerated to a 8.5%Y/Y decline. Thankfully,oil-specific data came in much more positive, with refiners processing 14.93M bbl/day of crude oil in July, up 31% Y/Y and 40,000 bbl/day higher than the June figure. China worries aside, physical markets continue to show signs of strength, with Asian refineries expected to continue ramping up imports while crude inventories at the Cushing, Oklahoma, hub are expected to drop to their lowest level since April. Supplies have become increasingly tight since late June as Saudi Arabia and Russia cut production. Indeed, the latest energy report by the International Energy Agency (IEA) revealed that global oil demand grew by 3.26 million barrels per day in Q2, reaching an all-time high of 103 mb/d. The IEA estimates that the call on OPEC and inventories will be 30 mb/d in Q3 and 29.8 mb/d, which implies inventory draws of over 2mb/d in both quarters at current OPEC output levels; the IEA assessed OPEC output at 27.86 mb/d in July. The call on OPEC is a measure of the “excess demand” that OPEC countries face, and equals the global oil demand minus both the crude oil production by non-OPEC countries and the production by OPEC countries which are not subject to quota agreements. Brent to Rally Past $100/bbl In Q4 Commodity analysts at Standard Chartered have buttressed that view saying their projections also imply large inventory draws peaking at 2.9 mb/d in August. However, their timing for when demand will hit a new high is a couple of months later than the IEA’s. StanChart estimates that June demand was about 0.5 mb/d below August 2019’s all-time high, but expects the record will be exceeded in the current month. According to the analysts, highly effective producer output restraint, led by Saudi Arabia, will create the conditions for a price rally that will take Brent prices above this year’s high at $89.09/bbl onto their Q4-average forecast at $93/bbl, with a likely intra-quarter high above $100/bbl. Related: Kurdistan Oilfield Restarted Despite Ongoing Export Halt Last month, the Energy Information Administration (EIA) forecast total U.S. output will hit 12.61M bbl/day in the current year, eclipsing the previous record of 12.32M bbl/day set in 2019’s and easily beating last year’s 11.89M bbl/day. U.S. crude oil output is up 9% Y/Y, which under normal circumstances would blunt OPEC’s efforts to keep supplies low in a bid to goose prices. There is little doubt the U.S. Shale Patch is largely responsible for keeping oil markets well supplied and oil prices low: Rystad Energy has estimated that whereas OPEC and its allies have announced cuts amounting to ~6% of 2022’s production, non-OPEC supply has made up for two-thirds of those cuts, with the U.S. accounting for half of that. Thankfully, U.S. output is unlikely to go high enough to put significant pressure on international prices. StanChart says the sharp tightening shown in most H2 balances is starting to spill-over into physical markets, and oil prices appear to be well supported to overcome the negative news coming from China. Meanwhile, the European gas market remains highly volatile. Reports of potential strike action at Australian liquefied natural gas (LNG) facilities about a week ago caused Dutch Title Transfer Facility (TTF) prices to spike 40% higher, peaking at EUR 43.545 per megawatt hour (MW/h). Whereas most of the upward move was swiftly reversed, front-month TTF still managed to settle at EUR 34.434/MWh on 14 August, a w/w gain of 13%. TTF prices have now risen 21.4% over the past two weeks despite increasingly bearish inventory dynamics. According to Gas Infrastructure Europe (GIE) data, EU gas inventories stood at 103.84 billion cubic meters (bcm) on 13 August, up 19.25 bcmY/Y and 17.86bcm above the five-year average. Europea’s gas stores are now 89.5% full, a level they took 57 more days to reach last year. The pace of refill continues being torrid, with the build over the past week clocking in at 2.56 bcm, the fastest in any seven-day period since late-May. EU gas inventories are currently just 5.59 bcm below last year’s high; a mere 8.64bcm below the all-time high and just 12.25bcm below the GIE estimate of full capacity. It will be interesting to see how the markets react when Europe’s gas stores are finally full.
The Impact Of Looming Strikes At Australian LNG Facilities Should Be Limited
A prolonged stoppage is the least likely scenario of potential strikes at Australian LNG facilities accounting for 10% of global supply, according to Reuters’ Asia commodities and energy columnist, Clyde Russell. This weekend, members of the union Offshore Alliance unanimously endorsed giving Woodside seven working days’ notice of Protected Industrial Action if the workers’ bargaining claims for the Woodside Platforms are not resolved by Wednesday, August 23. On Sunday, the unions at Woodside’s North West Shelf offshore gas platforms said they could go on strike as early as on September 2 if their demands are not met. Woodside’s talks with its LNG workers have so far failed to produce an outcome that would avert a strike at the country’s largest LNG facility, the North West Shelf. There, 99% of workers voted in favor of industrial action. Australia’s labor regulator earlier this month gave the go-ahead to industrial action at Woodside and Chevron LNG facilities, in case the workers’ votes are in favor of it. Natural gas prices in Europe and in Asia spiked when the news of the potential strikes broke. They have since retreated but if actual strikes begin, they would affect a tenth of the world’s supply of liquefied natural gas and another spike could follow. Woodside’s North West Shelf is the largest LNG production project in Australia, with a capacity of 16.9 million tons annually, followed by Chevron’s Gorgon, which has a capacity of 15.6 million tons. Wheatstone, also operated by Chevron, can produce 8.9 million tons of LNG annually. Together, the three produce about 40 million tons of LNG per year. Because of that substantial capacity, disruption at the three facilities would send ripples across the global gas market, sending prices higher and once again pricing poorer buyers out of the market. In addition, the pre-winter seasonal rally of LNG tanker charter prices has started earlier than in previous years amid expectations of high demand for the winter and uncertainties over the potential strike in Australia.
Green Hydrogen standards: India says H2 produced using RE will be classified as ‘green’
India joined the select league of countries of the world on Saturday as it notified its own standards for hydrogen to be classified as ‘Green Hydrogen.’ According to an official order dated August 18, the Ministry of New and Renewable Energy (MNRE) outlined the emission thresholds that must be met in order for hydrogen produced to be classified as ‘Green’, ie, from renewable sources. The scope of the definition encompasses both electrolysis-based and biomass-based hydrogen production methods. According to the notification, India will classify Hydrogen as ‘Green’ if it is produced using Renewable Energy (RE) through methods like, but not limited to, electrolysis and biomass conversion. Renewable Energy will also include electricity generated from renewable sources which is stored in an energy storage system or banked with the grid. After discussions with multiple stakeholders, the Ministry of New and Renewable Energy has decided to define Green Hydrogen as having a well-to-gate emission (ie, including water treatment, electrolysis, gas purification, drying and compression of hydrogen) of not more than 2 kg CO2 equivalent per kg of Hydrogen (H2) taken as an average over the last 12-month period.