In this week’s edition of oil and gas industry hits and misses, Rigzone’s regular market watchers focus on the reasons behind the wild oil price moves, the state of pump prices, energy import bans and more. Read on for more detail.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: As the Russian advance into Ukraine deepened this week, oil prices seemed to vary minute-to-minute as traders weighed the possibility of Russia’s crude exports being removed from the global marketplace. While more incidents of Ukrainian civilians being targeted occurred last weekend, and governments considered banning Russian oil, pent-up buying interest exploded last Sunday evening when trading resumed. The price of WTI rose $6 on the open from last Friday’s close of around $115.60 and raced to $130 per barrel, the highest level since 2008. Brent would also hit a multi-year high, reaching $139 per barrel that same evening. What had been nothing more than speculation regarding Russian oil bans became reality Tuesday when the Biden administration put a halt to all energy being imported by the U.S.. Given what is really a minor amount of total raw crude and refined products, the move could be more ceremonial with the intention of sparking other countries to follow suit. Russia’s oil exports represent about six percent of the global supply needed to match the 100 million barrel per day demand. Nonetheless, the news led to a 14-year high settlement of $123.70 for WTI. Conflicting inventory reports only increased the intra-day volatility. And a so-called, ‘flash crash’, sent prices plummeting on Wednesday as rumors spread that Ukrainian President Zelensky was willing to make certain compromises in the talks aimed at ending the war. The result was a High/Low price range for WTI of $23. Both crude grades look to settle lower on the week as the market explores any potential additional sources of supply such as OPEC and Iran.
Major oil companies such as, BP, Shell and ExxonMobil have made the tough decision to exit their joint ventures with Russian oil and gas companies which will cost each of them dearly. This week’s EIA Weekly Petroleum Status Report indicated that commercial crude inventory unexpectedly fell 1.86 million barrels to 411.5 million barrels total and now down to 13 percent below the average for this time of year. The API reported that inventories rose 2.8 million barrels while WSJ analysts called for a drop of only 400,000 barrels. Refinery utilization was higher at 89.3 percent, up from the prior week’s 87.7 percent. Total motor gasoline inventories fell by 1.4 million barrels but now stand at a one percent surplus to the five-average for this time of year. Distillate inventories decreased 5.2 million barrels, 18 percent below the five-year average. Crude oil stocks at the key Cushing, OK. hub fell 585,000 barrels to 22.2 million barrels, or 30 percent of available capacity, still the lowest level since 2018. The U.S. Strategic Petroleum Reserve had a draw of 2.5 million barrels, leading to a remaining total of 577.5 million barrels. The U.S. DOE has released 2.7 million barrels to Exxon under another exchange arrangement, which brings the total amount lent to all companies to 24.4 million barrels since November. U.S. oil production was stable at 11.6 million barrels per day vs. 10.9 million barrels per day at this time last year. U.S. inventories of crude and fuel, including the SPR, continue to sit at eight-year low levels. The North American rig count surprisingly fell by seven last week.
All three major U.S. stock indices are lower on the week while the U.S. dollar is higher and may play a factor in the lower crude prices. The U.S. LNG exporters continue to ramp-up deliveries to Europe with a record delivery of 164 cargoes during the first two months of 2022. New and expansion projects will help alleviate the ongoing shortages and resulting high prices overseas.
Michael Osina, Grant Thornton National Partner in Charge of Energy – Tax: If you have filled up your car with gas in the past week, you have noticed the impact of rising oil prices due to the Russia/Ukraine conflict. The national average price at the pump has topped $4 and is the highest since 2008. $100 oil may provide stimulus to the traditional energy industry but may also push the economy into stagflation. This will have a far-reaching impact on the consumer markets and the overall economy.
Rigzone: What were some market surprises?
Seng: While the U.S. ban on Russian energy imports was a pleasant surprise, only the UK joined in the effort at this time. The average price at the pump for gasoline in the U.S. hit $4.17 per gallon this week, topping the $4.11 mark set in 2008 when crude prices hit $147 per barrel. Additionally, U.S. diesel prices hit $4.88 per gallon, also above the previous 2008 record. Even though the U.S. sought to lead the way in banning Russian oil exports, EU countries have yet to follow. Given that it’s still winter in the region, such a move could create a hardship for member countries.
Osina: I am not sure they are really market surprises but several of the major oil companies quickly pulled out of Russia, following suit with and among many other global companies/brands. Russia’s global export footprint is heavily tied to the energy industry so we will have to watch and see how the market reacts.