BlackMask Breaking News

• US officials acknowledge lighter touch in enforcing sanctions
• Iranian oil exports to China reach highest in a decade: Kpler

Bloomberg: While Iran and the US make wary diplomatic overtures, a return to their lapsed nuclear agreement remains a distant prospect. But for world oil markets, a pact is already taking effect. Months of secretive diplomacy between the two nations have yielded progress on prisoner exchanges, the unblocking of frozen assets and possibly even Iran’s enrichment of uranium. They also seem to have produced an informal arrangement on oil flows. US officials privately acknowledge they’ve gradually relaxed some enforcement of sanctions on Iranian oil sales. Tehran has restored production to the highest level since the ban kicked in five years ago and is shipping its most crude to China in a decade. Iranian officials are confident they’ll pump even more soon. The supply flood is helping moderate oil prices, which eased below $85 a barrel in London this week, offering relief to consumers and central banks after years of rampant inflation. Keeping the cost of gasoline — now near $4 a gallon — in check may also aid President Joe Biden’s reelection campaign in 2024.

“It’s the traditional energy diplomacy game: cutting deals to get additional barrels,” said Helima Croft, head of global commodity strategy at RBC Capital Markets LLC in New York. “US and Iranian economic interests are aligned when it comes to more barrels on the market.”

Oil prices jumped more than 1% on Friday  after the latest report on US oil inventories, which showed they dropped by 6.1 million barrels in the week ending August 18. Crude output is also jeopardized by voluntary cuts by some OPEC member states. Additionally, markets are awaiting Federal Reserve Chair Jerome Powell’s remarks on further interest rate hikes later in the day. West Texas Intermediate (WTI) for October contracts increased by 1.37% to sell at $80.12 per barrel at 6:06 am ET, while Brent for the same month’s settlements gained 1.39%, going for $84.51 a barrel a minute later.  A strong dollar makes oil more expensive for holders of other currencies, denting demand.

Meanwhile, inventory draws have recently come through in convincing fashion, Morgan Stanley analysts wrote in a note.

The bank expects Brent crude prices to be well supported around $80 per barrel, with crude likely to remain in a deficit over the rest of this year before returning to a small surplus in early 2024. However, the likelihood of crude deficits is no foregone conclusion, said John Evans of oil broker PVM. Talks between Turkey and Iraq’s semi-autonomous Kurdistan regional government on northern Iraqi crude oil exports are set to continue after officials failed to reach agreement this week on a resumption of exports. Turkey stopped Iraqi oil flows via Ceyhan port on March 25 after losing a long-standing arbitration case brought by Iraq. Iran’s oil minister, meanwhile, has been quoted by state media as saying he expects the country’s crude oil output to hit 3.4 million barrels per day (bpd) by the end of September, even though U.S. sanctions remain in place. Elsewhere, U.S. officials are drafting a proposal that would ease sanctions on Venezuela’s oil sector, paving the way for more companies and countries to import its crude oil. Norway’s Equinor on Friday said it started production at its extended Statfjord Ost field six months ahead of schedule. “The support to oil prices from previous production cuts has ebbed,” Haitong Futures analysts said. Several analysts expect Saudi Arabia to extend its voluntary oil production cut of 1 million bpd for a third consecutive month into October.

Aug 25 (Reuters) – Saudi Arabia is considering a Chinese bid to build it a nuclear power plant, the Wall Street Journal reported on Friday, a decision that could derail U.S. plans in the kingdom. China National Nuclear Corp, a state-owned company known as CNNC, has bid to build a nuclear plant in Saudi Arabia’s Eastern Province, near the border with Qatar and the United Arab Emirates, the newspaper reported, citing Saudi officials familiar with the matter. CNNC did not immediately respond to a request from Reuters for comment. The foreign ministries of both China and Saudi Arabia did not respond to requests for comment on the report. Saudi Arabia has previously sought U.S. cooperation in establishing a civilian nuclear programme on its soil as part of a possible normalisation deal with Israel. U.S. officials have said in the past they would share nuclear power technology only if the agreement prevents enrichment of uranium or reprocessing of plutonium made in reactors – two routes to making nuclear weapons. Saudi officials acknowledged that exploring the issue with China was a way of goading the Biden administration to compromise on its non-proliferation requirements, the newspaper added. Saudi officials said they would prefer to hire South Korean state utility Korea Electric Power to build the plant’s reactors and involve U.S. operational expertise, but without agreeing to the proliferation controls that Washington generally requires, the newspaper said. The Saudi officials said Crown Prince Mohammed bin Salman was prepared to move ahead with the Chinese company soon if talks with the U.S. failed, the WSJ said. China would continue to cooperate with Saudi Arabia in civil nuclear energy while abiding by international non-proliferation rules, the newspaper cited China’s foreign ministry as saying. Israel’s energy minister has voiced opposition to the idea of Saudi Arabia developing a civilian nuclear programme as part of any U.S. effort to forge closer Israeli-Saudi relations. Israel has said it expected to be consulted by Washington on a U.S.-Saudi deal affecting its national security. Israel, which is outside the voluntary Non-Proliferation Treaty (NPT) and has no nuclear energy, is widely believed to have atomic weapons. Saudi Arabia has built closer relations with China over the past year. In March, China brokered a resumption of ties between Saudi Arabia and its arch-regional foe Iran. China and Saudi Arabia have extensive trade relations in the energy field, given the former is the world’s biggest importer of crude oil and the latter the biggest exporter. State-run China Energy Engineering Corp is building a 2.6-GW solar power station in Al Shuaiba alongside Saudi utility developer ACWA Power, in what is to be the Middle East’s largest solar project. Chinese President Xi Jinping visited the kingdom in December last year, in what was described by China’s foreign ministry as an “epoch-making milestone in the history of the development of China-Arab relations”. Nevertheless, Saudi Arabia has sought to maintain a balance between China and the United States, with the U.S. remaining its most important security partner.

The federal government has reduced the area to be offered in the next Gulf of Mexico oil and gas lease sale by 9% to safeguard the habitat of a rare whale species. The adjustment, which will see the Interior Department auction 67 million acres instead of 73.4 million acres, followed a legal settlement with environmentalists regarding the whale habitat, Bloomberg reports. The American Petroleum Institute was not happy with this and other changes. “While the Department of the Interior announced a much-needed offshore lease sale today, the Biden administration continues to throw up roadblock after roadblock to American energy production, prioritizing their campaign promise to stop American oil and natural gas development in federal waters over their duty to meet Americans’ energy needs,” the industry body said in a statement. “With this announcement, the administration is removing more than 10 million acres of the Gulf of Mexico and adding new and unjustified restrictions on oil and gas vessels operating in this area, amounting to a lease sale in name only,” the API continued. “These restrictions are not supported by the record and target the men and women of the oil and natural gas industry operating in this region, ignoring all other vessel traffic,” the industry body also said. The API was not the only unhappy party, however. The National Ocean Industry Association also had something to say about the latest lease sale. “The Gulf of Mexico is a long-standing and vital source of reliable, affordable, and environmentally responsible energy that is crucial to the wellbeing of our nation,” the NOIA said, as quoted by Offshore Engineer.

“The removal of nearly 11 million acres and the application of needless restrictive measures, included as part of the Stipulated Stay agreement, poses a real barrier to America’s energy production capabilities, at a time when they’re needed more than ever, with inflation driving up the costs of everything for Americans including gasoline at the pump.”

Saudi Arabia is likely to extend its voluntary 1 million-barrel oil supply cut for the third consecutive month into October amid uncertainty about supply, five Wall Street analysts have predicted. The initial cuts appear to have worked, with oil prices climbing about 15% in the past month to about $86 a barrel. However, the gradual rise in oil prices as inventory tightened has reversed over the past week with traders worrying again about weak economic data coming from China as well as the upcoming Jackson Hole symposium. Current Brent prices of $82.71 is too low for Saudi Arabia since it needs $100-a-barrel crude to balance its books, giving it another incentive to keep supplies tight.

“We think Saudi Arabia will extend the cut in full at least through October. The kingdom is adopting a cautious approach after the weakness in oil markets over the first half of the year and will want to see global inventories significantly decline before starting to unwind the additional voluntary cuts,” Richard Bronze, analyst at consultancy Energy Aspects, has told Reuters.

Meanwhile, brokerage PVM Oil’s John Evans and Saxo Bank’s Ole Hansen, have both predicted that a possible resumption of oil production from Iraq’s Kurdistan region may prompt the Saudis to withhold additional supplies to the market for now. Nevertheless, oil markets are expected to gradually tighten, which should boost prices as the months roll on. The International Energy Agency(IEA) in Paris has predicted an oil shortage of about 1.7 million barrels a day during the second half of the year.  Commodity experts at Standard Chartered have predicted that global oil markets will register a supply deficit of 2.81 million barrels per day in August; 2.43mb/d in September and more than 2mb/d in November and December. The analysts have also projected that global inventories will fall by 310mb by end-2023 and another 94mb in the first quarter of 2024 thus pushing oil prices higher. According to the experts, Brent prices will climb to $93/bbl in the fourth quarter.

(Bloomberg) — Oil pared losses as US stockpiles dropped to the lowest level this year and a rally in equities bolstered risk assets. West Texas Intermediate traded above $79, rebounding from an earlier plunge below $78. US crude inventories dwindled to the lowest since December 2022, according to a government report Wednesday, showing that supplies remain tight despite concerns about a potential slowdown in demand. Inventories at the nation’s biggest storage hub in Cushing, Oklahoma, slid the most since October 2021. While the bullish stockpile report supports oil prices, the market moves are “all macro right now,” said Rob Thummel, a portfolio manager at Tortoise Capital Advisors. Earlier in the session, prices fell to monthly lows as the contraction in euro-area private-sector activity intensified in August. China’s stuttering economy also continues to threaten demand for global commodities. Crude’s rally since late June has faltered over the last couple of sessions amid the worsening outlook in China and signs the Federal Reserve isn’t yet done with its campaign of monetary tightening. That has overshadowed a tightening market following supply cuts by OPEC+ kingpins Saudi Arabia and Russia. Adding to bearish sentiment, observed exports from Iran have surged to 2.2 million barrels a day this month. Meanwhile, Turkey and Iraq have held a flurry of talks as they seek to restart a major oil pipeline, though they have failed to reach a breakthrough so far.

EIA: US crude inventories down by 6.1 million barrels

Crude oil prices moved higher today, after the Energy Information Administration reported an inventory draw of 6.1 million barrels for the week to August 18. This compared with a decline of a substantial 6 million barrels for the previous week, which in turn followed a build of almost identical size for the week before that. At 433.5 million barrels as of August 18, U.S. commercial crude oil inventories are 2% below the five-year average for this time of the year, the EIA said. In fuels, the authority estimated a gasoline stock build and a middle distillate inventory increase for the week to August 18. Gasoline inventories added 1.5 million barrels in the reporting period, which compared with a minor draw of some 300,000 barrels for the previous week. Gasoline production averaged 9.7 million bpd last week, compared with 9.6 million bpd for the previous week. In middle distillates, the EIA estimated an inventory build of 900,000 barrels for the week to August 18. Production was seen at 5.1 million barrels daily. These figures compared with an inventory build of a modest 300,000 barrels for the previous week, with production during that week averaging 4.7 million barrels daily. Oil prices, meanwhile, remain bound by worry about another U.S. rate hike and China economic indicators. “Investors are reluctant to take big positions ahead of the Jackson Hole symposium as they want to find clues for the next step by the U.S. Federal Reserve,” a Nissan Securities analyst told Reuters. “Concerns over higher interest rates and sluggish demand in China are expected to outweigh tightening supply from OPEC+ in the short term,” Hiroyuki Kikukawa also said. “However, given that fundamentals remain constructive, we believe any price weakness will be relatively short-lived.”

 

Larger than previously expected oil inventory draws in developed economies could limit downside risks to oil prices and add $2 a barrel to Goldman Sachs’s end-year call for $86 per barrel Brent, the bank said in a note. Commercial oil stocks in the OECD region in August are trending 30 million barrels lower than Goldman Sachs analysts have previously expected, the Wall Street bank said in the Tuesday note carried by Reuters.

“The main reason for oil outperformance is that the oil market continues to price sizeable deficits,” Goldman analysts wrote in a research note on Tuesday, adding that draws tempered the bearish risk of what they previously called “persistently higher-than-expected inventories”.

Goldman said higher refinery runs slashed U.S. and Asia crude stocks by 21 million and 11 million barrels, respectively, since the end of June. Together with a China-driven fall in non-OECD stocks by 50 million barrels this month, and a Saudi Arabia-led draw of 20 million barrels from stocks on water, global oil stocks saw a month-to-date decline of 80 million barrels. Another bullish risk to prices from lower-for-longer OPEC+ supply has grown with “Saudi’s reiterated commitment to cuts and apparent willingness to extend and even deepen cuts”, Goldman said. China demand news was mixed and suggested that weakness in macro data was concentrated outside the oil-intensive services sector while international jet demand was still recovering. It also noted a bearish risk from higher Iranian supply, citing an estimated 500,000 bpd rise in exports through Aug. 20. Last month, Daan Struyven, head of oil research at Goldman Sachs, told CNBC that the bank expects oil prices to go higher as record-high oil demand and lowered supply are set to lead to a large market deficit.

“We expect pretty sizable deficits in the second half with deficits of almost 2 million barrels per day in the third quarter as demand reaches an all-time high,” Struyven said.   

Global observed oil inventories declined by 17.3 million barrels in June, led by draws in the OECD, the International Energy Agency (IEA) said in its monthly report in August. Observed oil stocks decreased for a third consecutive month in July, with OECD industry stocks now sitting at more than 100 million barrels below the five-year average. “Market balances are set to tighten further into the autumn as Saudi Arabia and Russia extend supply cuts at least through September,” the agency noted. If the OPEC+ alliance maintains its current production and export levels, oil inventories could draw by 2.2 million barrels per day (bpd) in the third quarter and 1.2 million bpd in the fourth quarter, “with a risk of driving prices still higher,” the IEA said.