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Oil markets brace for further supply disruptions

Oil markets are again nervous about possible supply disruptions. Continued efforts by the EU to ban imports of Russian oil and renewed efforts by the US Senate to pass the NOPEC bill would both result in supply disruptions.

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Friday, May 6, 2022

Another week has passed with the European Union unable to agree on a full oil embargo on Russian crude, hampered by internal disagreements over the timetable for the phase-out. If the project were to pass, we could face another supply squeeze, as OPEC+ has made it clear that it values ​​consistency over sudden moves. If the United States goes ahead with its NOPEC bill, the oil company’s willingness to meet global demand could plummet further.

OPEC+ Rubberstamps Another 432,000 bpd deal. In a meeting that lasted just 13 minutes, OPEC+ nations agreed to raise their June 2022 production target by 432,000 bpd, avoiding any discussion of sanctions against Russia and indicating that the global supply and demand situation is more or less balanced.

Russia’s oil ban depends on EEC backing down. Although Germany comes to adopt an embargo on Russian oil, the European Union has still not been able to agree on a phase-out of Russian crude imports, as most dependent countries like Hungary or Slovakia continue to ask for exemptions.

US Senate committee passes NOPEC bill. A US Senate committee passed the NOPEC bill which was introduced with bipartisan support, potentially revoking sovereign immunity protecting OPEC countries and Middle Eastern NOCs from lawsuits as high oil prices gasoline and inflation are forcing US lawmakers to take more aggressive action.

Vale enters nickel supply agreement with Tesla. from Brazil Vale (NYSE:VALE)the world’s largest producer of iron ore and nickel, has signed a long-term agreement with car manufacturer EV Tesla (NASDAQ:TSLA) to supply it with nickel from its operations in Canada.

India maintains its increased Russian purchases. The Indian government has defended its continued purchases of Russian crude, having bought more crude in April 2022 than in all of 2021, saying they were part of a broader strategy to diversify away from the Middle East and maintain remote fuel prices. Related: OPEC+ agrees to increase production by 432,000 bpd in June

Venezuela’s crude exports plummet due to quality issues. Crude exports from Venezuela’s national oil company PDVSA fell 8% month-on-month in April to some 650,000 bpd, media reports said, amid poor crude quality and limited upgrading capacity limiting further increases.

China is doubling its fleet of LNG carriers. China’s state-controlled CNOOC (SHA:600938) reportedly awarded contracts worth $2.5 billion to build 12 liquefied natural gas tankers at Hudong shipyards Zhonghua, seeking to capture a larger share of the LNG freight market in Asia.

Nordic electricity prices are at an all-time high. Previous year electricity prices in European Scandinavia hit a record high this week of €92 per MWh, due to low available hydroelectric storage in southern Norway, the country’s total water reservoirs n being only 22% full.

Wind turbine manufacturers are eager to forget about Q1. Wind turbine manufacturers like Vestas (CPH: VWS), GE Renewable Energy (NYSE: GE), and Siemens Gamesa (BME:SGRE) all recorded losses for the first three months of 2022, due to soaring raw material costs and growing competition.

Petrobras sees a new Guyana on its northern border. Brazilian state-controlled oil company Petrobras (NYSE:PBR) hopes to recreate Guyana’s oil exploration success in its northern offshore border, having decided to invest 2.5 billion in drilling the equatorial margin.

EU countries are beginning to replenish their gas stocks. Gas stocks in the European Union and the United Kingdom have seen steady increases in recent weeks, with total stocks reaching 380 TWh on May 1, as exceptionally high gas prices have discouraged consumption by electricity producers .

LME bans Russian lead from the market. The London Metal Exchange announced this week that it would stop trading lead produced in Russia and allowing it in its warehouses, fueling fears that a similar decision could take place on aluminum and nickel, where its impact would be much more serious than the 2% rise in lead.

Germany charters 2 FSRUs to deal with the risk of Russian supplies. German utility company Uniper (ETR:UN01) will charter two large FSRUs from the Greek shipping company Dynagas, each with a gas emission capacity of 7.5 Gm3 per year, to deal with a possible cut in the supply of Russian gas.

India is pushing for maximum coal supply. India plans to reopen more than 100 coal mines previously seen as financially unsustainable as heatwaves continue to hurt power generation across the country, potentially preventing off-peak consumption later at the end of the 2020s.

By Josh Owens for Oilprice.com

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