Russia’s joker to keep oil markets busy, executives warn

HOUSTON: Executives and officials at some of the world’s top oil and gas companies said energy markets are now balanced but could be easily disrupted due to tight spare production capacity and supply uncertainties related to Russia’s war in Ukraine.

Comments at the CERAWeek energy conference in Houston show the industry remains nervous after weathering the initial aftermath of one of the biggest shocks to global energy flows in recent memory. A moderate winter helped by giving major consumers in Europe a respite from typically high demand for heating oils.

“There is very little spare capacity available, so small changes in supply have an impact,” said Anders Opedal, chief executive of Norwegian energy giant Equinor. “The market can easily move either way.”

Opedal predicted that Europe’s natural gas supply uncertainty will persist in 2024 and likely into 2025 since Russia invaded Ukraine and disrupted regional supplies. Tighter global crude supplies are also possible after the Kremlin last month threatened to cut supply by 500,000 barrels per day (bpd) from March.

On Monday, at a private dinner on the sidelines of the conference, US energy executives and senior OPEC officials discussed concerns about a lack of spare oil production capacity, an executive said.

“We may have come through this winter surprisingly well, but I don’t think we’re out of the woods yet,” said Michael LaMotte, senior managing director at investment bank Guggenheim Securities. “And things might actually get worse before they get better.”

Algeria, a member of the Organization of the Petroleum Exporting Countries (OPEC), is in the process of investing $40 million (RM181 billion) in upstream businesses to meet demand, particularly demand in Europe, said Mohamed Arkab, the energy minister of land and mines.

Tight spare capacity makes it crucial for governments sanctioning Moscow for invading Ukraine to cap the price of Russian oil rather than cap the country’s ability to export crude, said Frederic Lasserre, Gunvor’s global head of research and analytics .

US Energy Commissioner Amos Hochstein said the price cap – which aims to reduce Russian revenues without slowing exports – is working well as Russian oil is still finding its way to the market.

The Group of Seven (G7) countries, the European Union and Australia on December 5 introduced the price cap for sea freight of Russian oil, setting it at $60 per barrel.

On February 5, the G7 and its allies also introduced a price cap on Russian fuel sales.

On Tuesday, the Kremlin said it did not recognize the price cap.

Though Russian oil is still coming onto the market, it does so at different costs as ships have to travel longer distances to get the crude to countries that haven’t imposed sanctions, Chevron CEO Mike Wirth said. Opec Secretary General Haitham Al Ghais said Tuesday he was not concerned about the diversion of Russian crude exports to countries like China and India.

Officials including chief executives of Gunvor and Kuwait Petroleum Corp have assured CERAWeek attendees that the oil market has stabilized and reached equilibrium, putting behind fears of crude oil, gas and fuel shortages this winter.

However, the outlook for the oil market later this year is turning bleaker as companies, consumers and governments grapple with factors ranging from fears of a possible global recession and higher interest rates to growing energy demand from China as the coronavirus restrictions ease gives up.

China’s oil demand will grow by 500,000 to 600,000 barrels a day in 2023, OPEC’s Al Ghais said, while global oil demand is expected to grow by 2.3 million barrels a day in 2023.

Crude oil prices could rise in the second half of the year if Chinese demand returns to the market, Gunvor chief Torbjorn Tornqvist said on Monday. On Tuesday, Federal Reserve Chair Jerome Powell told lawmakers that the central bank will likely need to raise interest rates more than expected to control inflation.

“This year will be a tougher environment…driven by broader macroeconomics, also combined with flows from Russia,” said Savvas Manousos, Cepsa’s executive vice president of global trading. – Reuters Russia’s joker to keep oil markets busy, executives warn

Andrew Schnitker

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