Development of the price of oil
The price of oil rose last week: the price of BRENT oil rose to about $ 76.14 a barrel at the end of the trading day on 12/24/2021 and the price of a WTI barrel rose to about $ 73.79. This increase occurred despite the spread of the American variant in Europe and the US, which began to tighten restrictions in some countries and even close in a small number of countries. The relatively strong demand for fuels continues, while positive sentiment in the market is supported by a change in the position of Democratic Senator Joe Manchin, who opposes the current wording of the Biden administration’s economic plan Build Back Better which could, among other things, support green energy and contribute to the medium and long term. The demand from oil for different types of cleaner energy.
Global supply
OPEC + has not changed its position so far and we estimate that it will continue to increase its oil supply in January 2022, provided that there is no significant tightening of restrictions in a large number of countries which will lead to a significant drop in demand. However, the group has warned that it may react quickly to market developments, so that if a large number of countries tighten the restrictions that will lead to a decline in demand, the group may stop increasing supply in the market and even reduce it if necessary.
Libya is trying to increase its oil output to 1.4 million barrels per day by the second half of 2022 and it is expected to present to the country’s oil companies contracts that will encourage them to meet this target. However, even though the civil war in Libya is over, there are still effects that sometimes disrupt oil production, so the country’s success in increasing oil production depends very much on developments within the country and the observance of the ceasefire agreement.
Nigeria is also struggling to increase its oil production and is producing less than its quota under OPEC + agreements. Nigeria’s oil production could fall in December, after Shell announced a “force majeure” and halted oil shipments through the seaport near the source of the Forcados River in Nigeria. This port is responsible for the export of more than 200,000 barrels of oil per day and stopping its activities could hurt Nigeria’s oil exports.
US oil inventories decreased in the week ending 17/12/2021 by about 4.7 million barrels, after a similar decrease the previous week, and reached about 244 million barrels. This decrease occurred despite the increase in net imports, which was mainly due to an increase in the decrease in oil exports More than the decline in gross oil imports, on the other hand, the oil inventory in the Cushing reservoir continued the recovery trend and rose to about 34 million barrels.
US oil supplies from the strategic reservoirs continue, and in early January a tender is expected for the supply of an additional 18 million barrels of oil to be supplied during the first quarter of the year, as part of the US plan to supply 50 million barrels of oil from its strategic reservoirs. Inflationary and lower the price of fuel for consumers. Additional countries are expected to join this move and also supply oil from their strategic reservoirs, in order to alleviate the global shortage and prevent a significant rise in the price of oil. South Korea is expected to start supplying oil by the beginning of 2022 from its strategic reservoirs and it is expected to sell about 2 million barrels of oil to the country’s refineries and about one million barrels of petroleum distillates and its products.
Global demand
Demand for US car fuel fell in the week ending Dec. 17 to about 9.0 million barrels a day, but remains high relative to the period of the first year of the Corona crisis. Increasing the use of transportation and increasing the demand for fuel, on the other hand, the continued spread of the virus is expected to hamper the recovery of demand in early 2022 and support the US administration’s efforts to lower the price of fuel. In our estimation, the rise in morbidity and the tightening of restrictions, with an emphasis on restrictions on international air traffic, is expected to reduce the demand for aircraft fuel.
China’s diesel exports began to recover in November and rose to about 149,200 barrels per day, an increase of about 11% from the October level and a 69% increase from the same period last year. This increase occurred after the Chinese government feared a shortage of diesel in the country and allowed manufacturers to increase their diesel production, thus creating an excess supply of diesel in the country that supported an increase in exports.
The natural gas economy
The price of natural gas in the US (Henry Hub) continued to fall slightly last week, as a continuation of the sharper declines that were from the end of November, reaching $ 3.73 to the MMBTU. The US may in some cases be used as an alternative energy to natural gas, while the amount of natural gas in the reservoirs has decreased compared to the same period last year in the direction of the average inventory level in the last five years.
The decline in inventories also reflects the continued expansion of U.S. natural gas exports. Over the next year the U.S. is expected to reach the status of the world’s largest natural gas (LNG) exporter and thus overtake Australia and Qatar. At the same time, the volume of natural gas production in the US is expected to peak during 2022. LNG exports from the US have an increasing weight in helping Europe deal with the gas shortage there. A relatively large number of US LNG carriers have recently been sent to Europe to balance the reduction in gas flow from Russia to Europe.
The price of European natural gas (TTF) has been very volatile in the last month. From the beginning of the month until the beginning of the previous week, the price of European gas rose by more than 85%, due to the shortage of natural gas and low gas supplies from Russia due to delays in regulatory approvals for the operation of the Russian gas pipeline Nord Stream 2. But last week. -100 euros per MWh. This is against the background of an increase in the supply of liquefied natural gas (LNG), mainly from the United States but also from other sources in the world, in response to the sharp rise in the price of European gas, which reached a peak 13 times higher than the US price.
Expect the medium term
The OPEC + group is expected to increase oil production in January, in accordance with the decision made. If the spread of the omicron variant leads to further tightening of restrictions, which will reduce energy demand and destabilize the market around the current price level, it may overturn the decision to further increase production in early 2022. This is in line with Saudi Arabia’s current strategy. In the market, without giving preliminary hints.
At the same time, the IEA estimates that tightening restrictions in Europe is expected to lead to an excess supply in the market in 2022, based presumably on giving significant weight to the increase in morbidity resulting from the spread of coronavirus variant omicron and exacerbation of restrictions. However, if the “life alongside the corona” routine does not significantly hurt economic activity, the aggregate level of demand will be maintained and this may support the current oil price.
The price of European natural gas (TTF), which has risen sharply in recent months due to its current shortage, is expected to remain at a significantly high level in the coming months compared to the past average – of about 20 euros per MWh – until the inventory problem is resolved. Demand and supply side, and inventories will rise again. If, despite the various difficulties, Russia operates the Nord Stream 2 gas pipeline sufficiently for Europe, this will reduce the price from its peak levels and prevent the passage of natural gas demand for oil, with the potential for a moderate effect on the price of oil later in 2022.
Tensions between Russia and Ukraine could develop into sanctions on Russian energy companies. Such a move could lead to European countries being limited in the volume of energy purchases from Russia, while supporting the high price level and diversion of natural gas users to oil, which is an alternative energy source, which will support the current oil price.
Another important factor is the climatic factor and the severity of the coming winter and the extent of consumption for heating purposes. Given the low flexibility of gas demand in Europe in relation to price, and at the same time the volume of domestic output in Europe is relatively limited, a solution to natural gas shortages in Europe is mainly based on imports, whether from Russia or the rest of the world. The gas purchased from Russia.
Oil futures indicate a certain drop in price in the first half of 2022 and a further drop during 2023. This is probably due to expectations that oil supply will increase in 2022, and there may even be a certain excess supply, alongside fears of the Corona virus continuing to affect economic activity.
.