Outlook: Energies are seeing substantial gains to end the month with the exception of natural gas. Crude and refined products are being boosted by reports that the EU has finalized its long-proposed Russian oil ban. The ban will total 90% of Russian imports phasing crude out within 6 months and refined products out within 8 months. The ban is seaborne focused, however, voluntary additions to pipeline bans will yield a total of 2.2 million bpd to be replaced. Hungary had been the lone country opposing the ban over the last few weeks but today they received a concession to allow pipeline imports to continue and cast a vote of approval. Additionally, for the bull camp, China’s covid cases are at 3-month lows and Shanghai is allowing people to leave housing compounds in low-risk areas. Natural gas was excluded from the Russian oil ban as expected, although Russia continues to shutter flows to unfriendly countries. The net spec and fund long for crude and products remain very low relative to the last two years. This means there is ample room for speculative buying to support prices.
Crude
- The EU has agreed to a seaborne Russian oil import ban.
- The ban will consist of cutting 90% of oil imports from Russia, with crude being phased out over 6 months and refined products being phased out over 8 months.
- Russia’s current seaborne export volume to the EU is between 1.2 - 1.5 million barrels.
- Germany and Poland will also phase out pipeline imports to a total of 2.2 million barrels of product to be replaced.
- Hungary will maintain Russian pipeline imports as a concession to approve the deal.
- Iraq and France have discussed the possibility of supplying Iraqi crude oil to Europe.
- The price of Russian Urals averaged $73.24 a barrel between mid-April and mid-May according to Russia’s Finance Ministry.
- China reported the fewest new covid cases in almost three months.
- Shanghai will let people in areas deemed low risk for covid leave housing compounds.
- OPEC+ is expected to stick with its supply target increase of 432,000 bpd for July.
- Kuwait has started up the first of three units at its new refinery. Once fully operable, it will be one of the largest refineries in the world with 1.5 million bpd of capacity.
- Baker Hughes reported US oil rigs fell by 2 last week.
- As of 8:30 am CST: Brent crude oil up $2.26 to $123.93, US dollar index up $0.336 to 102.004 while the nearby e-mini S&P 500 futures contract is down 15.25 to 4141.00.
Diesel
- Russia is by far the largest supplier of diesel to the EU, accounting for more than 40% of imports in 2020 according to Eurostat data.
- The net spec and fund long in diesel are at their lowest levels since November 2020.
Gasoline
- The net spec and fund long in gasoline are near the lowest levels since September 2021, which suggests buying of fuel remains substantial.
- AAA reports the average retail gas price has hit a new record at $4.622.
Propane
- Conway is trading at $1.24 and Belvieu is trading at $1.2675.
- Propane markets have rallied near month-end over the last few months.
- Traders covering end-of-month short positions aided to strength over the last few sessions.
Natural Gas
- Total US demand declined by 3.0 Bcf/d yesterday to 81.1 Bcf/d.
- Natural gas was not included in the EU oil embargo.
- Baker Hughes reported natural gas rigs increased by 1 last week.
- Total inventories sit at 1,812 Bcf and the deficit to the 5-year average expanded to 327 Bcf.
Global Demand: The IEA has cut its oil demand forecast for Q2 of 2022, bringing it below Q1 supply. Covid lockdowns have been the headline leader for demand loss, but the recent EU oil embargo will put a strain on supply recovery. ANZ analyst Soni Kumari said the latest EU embargo could keep the market undersupplied between 1.5 – 2 million bpd for the second half of the year.
