Bearish sentiment is building once again in the oil markets

A combination of rising Covid infections in China, uncertainty over the G7 oil price cap and a rise in US oil inventories has pushed oil prices lower this week. As oil prices rallied early Friday morning, the buildup of bearish sentiment is palpable.

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Friday 25 November 2022

With the oil price cap set to take effect in just 10 days, oil markets are desperately awaiting any clarification on the actual details of the price cap. The European Union met to align on a common ceiling for the price of oil, but talks stalled as members failed to agree on the best price. Media reports suggest that the G7’s proposed maximum oil price level would be between 65 and 70 a barrel, substantially higher than initially assumed. Coupled with the COVID crash in China and rising inventories in the US, this news drove oil prices lower for the week.

China’s opening up no longer seems real. China’s daily recorded Covid-19 cases hit an all-time high this week, surpassing 31,000, with Henan and Guangdong returning to lockdown mode as Beijing residents were subjected to the toughest restrictions since the start of the pandemic .

Maximum Lambast gas price proposal in EU countries. The EU’s recently announced proposal to cap gas prices at €275 per MWh has been heavily criticized by member states, with some dissatisfied with the lack of clarity, while Germany and the Netherlands say any cap would shift supply elsewhere .

Biden considers expanding heating oil inventories. The Biden administration is considering an increase in the purchase of heating oil destined for the Northeast Home Heating Oil Reserve, as the current stock of 1 million barrels of diesel (worth 10 days’ supply) is not sufficient to facilitate the compression of the middle distillate.

The new Lula era means no more asset sales for Petrobras. Brazil’s President-elect Lula da Silva’s transition team has asked Bolsonaro’s outgoing administration to halt all pending asset sales of the national oil company Petrobras (NYSE: PBR) while committing itself to a non-interventionist policy.

Chevron for more action in Venezuela. US oil major Chevron (New York Stock Exchange: CVX) could be allowed to significantly increase oil production in Venezuela if the government of Nicolas Maduro resumes Mexican-brokered negotiations with the opposition.

Iran’s nuclear program draws international ire. Following an IAEA report that found Iran is enriching uranium up to 60% at its Fordow site, Germany, France and the UK have condemned Tehran’s actions as a challenge to the non-proliferation system , reducing the odds of an Iranian deal anytime soon even lower.

Plant fire stokes fears about frac sand supply. A fire at the Superior Silica Sands plant, which produces frac-sand for pumping into shale wells during drilling, is jeopardizing the supply of the key component in the Eagle Ford Basin, with frac-sand prices already tripling in 2022 so far.

Nigeria estimates the damages caused by the theft of oil at $2 billion. An investigation conducted by the Nigerian Senate found that the African country lost more than 2 billion to oil theft in January-August 2022 and that only 66% of the country’s oil production was safe, with even major projects such as by Shell (LON:SHEL) Forcados susceptible to attack.

Chinese majors accelerate divestment in the US. According to media reports, China’s offshore oil major CNOOC (HKG:0883) is stepping up the sale of its US assets, with the UK oil producer Port Energy (LON:HBR) it is said to be in talks for its interests in two fields in the Gulf of Mexico, Appomattox and Stampede.

Germany joins the Windfall Tax Club. Joining the ranks of the UK or Italy, Germany will introduce a 33% windfall profit tax on oil, gas and coal companies should their current profits exceed their average number by 20% or more 2018-2021.

The Italian city launches the challenge against the LNG terminal. The Italian city of Piombino has sued the country’s government over a planned 5 bcm LNG terminal in the Tuscan port, saying work on the project should only begin once safety guarantees are provided to local fishermen and businessmen.

New drilling frontier opening up in Africa. Backed by the success of his discovery of Venus in Namibia, French oil major TotalEneries (NYSE:TTE) it is planning to launch a drilling campaign in the west coast of South Africa close to the Namibian offshore block containing the supergiant find.

Ghana wants to pay for oil with gold. Ghana’s government is trying to formalize a new policy that would allow gold to be used instead of US dollars to buy petroleum products, as the African country’s international reserves have shrunk to just $6.6 billion, down by a third on an annual basis.

Blackout shuts down Ukraine’s largest steel mill. Amid Russia’s continued rocket attacks on power generation infrastructure, recurring blackouts have halted production at Ukraine’s largest steel mill operated by ArcelorMittal (AMS:MT) in Kryvyi Rih, with insufficient electricity to support production even at 20% capacity.

By Tom Kool for Oilprice.com

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