“Round 'n around 'n up 'n down we go again”

Weekly Oil Trading Market Report 20th May to 2nd June.

A line from the pop song “Let’s Twist Again” by Chubby Checker seemed an appropriate description for the kind of week the oil trade has endured this last 7 days….!

Prices looked weak and under pressure for much of the week, in fact as the new American debt ceiling “bucket” arrangement started to “leak water” ICE Brent markets looked headed for sub $70, however, as the week moved on and the inevitable agreement finally looked a less leaky affair by the time we arrived at Thursday the bearish debt ceiling puzzle had faded into the rear view mirror and a bullish cloud began to form in front of us in the form of another “ouchy” (the Saudi Energy minister’s favourite word?) OPEC meeting.

The meeting “Clicked into gear” on Saturday but on reflection this may be the wrong expression as the meeting certainly kicked off in the wrong gear after a push by the UAE (Abu Dhabi in particular) to change the way it’s output cuts are measured and that change would come at the expense of African countries expected to give up their unused opec production quotas. This really went down like the proverbial lead balloon with Nigeria and Angola (who collectively are producing at 800,000 barrels below their quotas) with the smaller producers Republic of Congo, Equatorial Guinea and Gabon also being pushed from behind. In general terms this could be best described as an opec disagreement, squabble and infighting but inevitably they will likely smooth a path to maintain their shiny efficient appearance. (somewhere between unchanged and a 1 million barrels per day production cut!!!)

However, OPEC’s problem isn’t as simple as that as the background to production and demand lies in a redrawing of the oil map since the war in Europe began and how European sanctions have impacted Global oil flows. Russia is now sending more oil to Asia thus competing with Saudi Arabia on its “own doorstep” although Saudi appears to have trumped that issue to some extent by importing price discounted Russian diesel and exporting their own full priced refinery manufactured diesel to Asia to fill the demand gaps left by Asian refinery turnarounds.

According to Vortexa data group Russian gas oil shipments to Saudi Arabia (Ras Tanura refinery) are expected to reach 500,000 metric tonnes in May after all the beans are counted and in the same time frame Saudi will export 400,000 metric tonnes to Singapore at quite clearly a much higher price than it pays its eager supplier!

When opec finish their deliberations we shall have a new set of numbers to start the working week and we can all start twisting again and again until the next spurious headline hits the wires!!?

Meanwhile the new Nigerian President Bola Tinubu swept into office and his first job was to deregulate Nigerian gasoline pump prices which immediately rose at least 250% on the back of his actions. The last time this happened (2012?) the Nigerian government was forced to drop the idea and quickly reinstate the previously lower regulated prices to appease the population.

However, this time it all looks for real (many notices have been sent out by the government to this effect) and is here to stay with the government reassuring the people that the gazillions of dollars spent per annum on gasoline import costs can be spent on schools and hospitals and will fade into nothing just as soon as the Dangote refinery swings into operation as this eventually 650 kbd refinery will satisfy the gasoline needs of the country. This all sounds very reassuring but much depends on just how much better that refinery’s gasoline production quality is over NigerIan grade and good old fashioned economics and commerce ( quality swaps seem the best solution with Nigeria securing a premium for better quality Dangote gasoline versus poorer quality Nigerian grade back) and just how Nigeria deals with the new world of crude oil given the country’s gasoline imports are paid for with crude oil rather than crude production being at the mercy of the spot market!

We remain optimistic the trick will work but it will be far from straightforward with many bumps along the way.?

The Nigerian government may well have found the thread that unravels the knot but as the saying goes “The opera ain’t over ‘till the fat lady sings” and from this distance it would seem she’s only just arrived in her dressing room!!?

The oil markets are caught in a mix of confusing and sometimes conflicting stories which impact price levels in a way that baffles many an oil market participant, this week was a prime example of the new twists and turns we can expect, welcome to the new World of oil!

This week’s closing guide prices:

ICE Brent 76.13 (-44 cents)

WTI 71.74 (-74 cents)

ICE gas oil 695.25 (+7.75)

Euro Mogas swaps 806.00(-36.00)

Euro naphtha swaps 594.00 (-16.00)

Nymex gasoline 2.5007 (-17.00 cents per gall)

Lpg swaps 408.00 (-20.00)

Opec basket 72.79 (pre Friday’s market bounce)?

Credit: Bob Haynes, Silvergreen Energy