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IIR's May 3 Market Scorecard Brings You Breaking Geopolitical News
Stay current with the latest geopolitical events, and more importantly, instantly connect to how these events may impact you and your business strategies.
Released Tuesday, May 03, 2022
Researched by Industrial Info Resources (Sugar Land, Texas)--Stay current with the latest geopolitical events, and more importantly, instantly connect to how these events may impact you and your business strategies.
| Event | MarCon* | IIR Comment | Outlet | IIR News |
| OPEC+, U.S. production are the themes this week for oil |  |
While parties to an OPEC production agreement meet this week, its rubber-stamping tendencies mean U.S. production and developments in Eastern Europe will determine the direction of crude oil prices, analysts said. It's been more than 60 days since Russian military forces stormed Ukraine. The price for West Texas Intermediate, the U.S. benchmark, was $91.59 per barrel when the war began on Feb. 25. It spiked 35 percent over the course of just over a week to reach $123.70 on March 8. Western powers have increasingly tried to isolate Russia financially as punishment for the invasion. Millions of barrels of Russian oil, as well as other commodities such as wheat, could become untradeable due to sanctions or because companies want to avoid the shame of continuing to do business with Russia. Crude oil prices, however, have since declined from those early-March highs, in part because the initial shock over the invasion has faded. But they're still high. Oil closed trading last week up about 4 percent to $104.69 per barrel. Ed Longanecker, president of the Texas Independent Producers & Royalty Owners Association, said the wild swings in the market should continue as long as the conflict drags on in Eastern Europe. Russian fuels may be disappearing from the market, but global demand is slipping, too, as China locks down cities to quash outbreaks of COVID-19. |
Houston Chronicle | U.S. Oil Export Destinations Need To Shift To Save Europe |
| Oil falls on China growth worries as EU weighs Russian crude ban |  |
Oil prices fell on Monday as concerns over weak economic growth in China, the world's top oil importer, overshadowed fears supply might be crimped by a potential European Union ban on Russian crude. Brent crude futures were down $3.73, or 3.4%, to $103.41 a barrel at 1403 GMT, while U.S. West Texas Intermediate (WTI) crude futures fell $3.98, or 3.8%, to $100.71 a barrel. Markets in Japan, Britain, India and across Southeast Asia were closed for public holidays on Monday. China released data on Saturday showing factory activity in the world's second-largest economy contracted for a second month to its lowest since February 2020 because of COVID lockdowns. "A slowing to that extent, when China is already suffering from a property bust and worries about its (until recently) increased regulation, is potentially a major issue for commodity markets and the world economy," said Tobin Gorey, a Commonwealth Bank commodities analyst, in a note. |
Reuters | Analysis: New U.S. Barrels Can't Solve Old Supply Problems |
| A full European ban on Russian oil is coming |  |
After weeks of reluctance over banning Russian oil imports, German officials today (Apr. 29) reversed course, agreeing to a gradual, EU-wide embargo. Other European countries have recently grown more amenable to such a ban as well, as Russia's war on Ukraine has persisted. The EU's 27 member states have to agree unanimously for a ban to come into effect. But Germany has been the major opponent to this measure, because it purchases so much Russian oil and gas. Last year, Germany bought 27 billion tons of Russian crude, a third of its overall oil consumption. "It was a mistake that Germany became so heavily dependent on energy imports from Russia," Christian Lindner, Germany's finance minister, told the New York Times earlier this month. But like other European states, Germany has been scrambling to find alternative sources of fuel-to the extent that Russian oil now accounts for only 12% of domestic consumption. In all, the EU buys 3 million barrels of oil from Russia everyday. Countries like Germany can diversify their sourcing by buying instead from the US, Iran, Norway, and Canada, wrote Maciej Miniszewski, a climate and energy analyst at the Polish Economic Institute. |
Quartz | EU Makes Tough Decisions to Cut Dependence on Russian Gas |
| The inevitable decline of Russia's oil industry | |
Despite the severe oil production cuts expected in Russia this year, tax revenue will increase significantly to more than $180 billion due to the spike in oil prices, Rystad Energy research shows. This is 45% and 181% higher than in 2021 and 2020, respectively. Russia's progressive tax system means that taxes increase in line with higher oil price ranges. With the oil and gas sector remaining the keystone of the country's economy and with Western sanctions over the invasion of Ukraine starting to mount up, Russia is looking east for export opportunities. Russian oil volumes are estimated to drop by 2 million barrels per day (bpd) by 2030 compared to 2021, while gas production will grow marginally, but will still be lower than pre-conflict estimates. Extremely high gas prices in Europe as well as liquefied natural gas (LNG) prices in Asia will generate around $80 billion of tax flows in Russia in 2022. Russia's recent move to block gas sales to Bulgaria and Poland will not have a significant impact on revenues. After Russia invaded Ukraine in late February, European buyers started to shun Russian crude amid sanction-related fears. The first issues with oil exports were expected in March, but this was only the case for the first three weeks of the month. Loadings began to recover on 24 March, supported by more orders from China and India. Russian crude exports were still resilient in April. Tensions between Europe and Russia are, however, increasing and may result in crude embargoes. "Europe's dependence on Russian energy has been a deliberate and decades-long and mutually beneficial relationship. In this early phase of sanctions and embargoes, Russia will benefit as higher prices mean tax revenues are significantly higher than in recent years. Pivoting exports to Asia will take time and massive infrastructure investments that in the medium term will see Russia's production and revenues drop precipitously," says Daria Melnik, senior analyst at Rystad Energy. |
OilPrice | More Oil May Not Be Economic Panacea |
| The staggering speed Of ADNOC's energy diversification | |
Abu Dhabi's national oil company ADNOC is implementing its diversification plans at a staggering speed. Recently, it announced new major renewable energy projects and investments worldwide, and now the Abu Dhabi giant has re-entered the petrochemical sector in full force. ADNOC has acquired a 25% equity stake in global petrochemical giant Borealis from sovereign wealth fund Mubadala. The acquisition fits perfectly into ADNOC's ongoing investment strategy to expand its downstream footprint around the world. With the acquisition of the strategic 25% stake in Austrian petrochemicals producer Borealis, the company not only strengthens its foothold in the downstream sector but also acquires major new openings in the European and American markets. ADNOC is stepping out of the shadow of its compatriot Saudi Aramco, which has been very active lately in acquiring major new markets in Europe, especially in former Russian-held positions in eastern Europe and the Baltic. In a reaction to the press, ADNOC's CEO and Minister of Industry and Advanced Technology, Sultan Al Jabr, stated that the acquisition is a reaction to the expected growth of the global chemicals and petrochemical sectors, due to consumer-led growth. The Abu Dhabi giant will be a co-shareholder with Austrian oil and gas company OMV, which is a strategic operator in eastern and central Europe already... ADNOC and Borealis (aka OMV) have long worked together, especially via the Abu Dhabi Borouge facility. At present ADNOC plans to expand its current 4.5 million tons of downstream capacity (Borouge) by 300%. ADNOC and partners are currently implementing a $45 billion downstream investment plan, of which a Borouge-Borealis $6.2 billion project to set up a 4th plant at Borouge is part. The new facility in Ruwais will receive feedstock from ADNOC, producing polyethylene and polypropylene, as well as benzene and butadiene. |
Oil Price | ADNOC to Increase Oil Production from Offshore Field |
| Weekly Recap: 4/25-5/2 | |
Age old question... Supply vs. Demand? It seems as the world wrestles with an ongoing supply shock because of what is unfolding in Eastern Europe; such is offset by demand destruction in China due to weak economic growth as a COVID lockdown continues. However, it now appears inevitable that an EU ban on Russian oil will be taking place. Therefore, supply shortages might trump demand destruction to drive prices even higher in the short term. Longer term, one could witness the decline of the Russian hydrocarbon industry; albeit this is in context of the push to decarbonization. "Net Zero by 2050" is the refrain heard round the halls of world policy centers. So, one will likely witness more energy diversification like ADNOC's and some of the world's oil majors. Perhaps this will even alter the age old question - supply vs. demand?... | ||
| *MarCon (Market Condition 1-5, with 5 being the highest impact) indicates directional bias or price effect for the relevant commodity (Oil, Natural Gas, Chemicals, etc.) and is graded by our team of experts here at IIR. | ||||
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