China's Attempt To Kill The Oil Rally Is Bound To Fail

In normal times, an announcement from China that it would release crude from its strategic reserves would drive oil prices down, but these aren’t normal times and the relentless oil rally has continued.

Friday, January 14th, 2022

It may seem somewhat counterintuitive for the oil market to shake off news regarding a potential Chinese SPR release, but that is exactly what has happened this week. With the mood still firmly bullish on the back of a weakening dollar, Libyan supply issues, and lower-than-expected OPEC+ output, the oil price rally was driven higher by reports of product inventories hitting multi-year lows. With refiners still wary about ramping up operations to full capacity, middle distillate stocks have become so scarce that backward action in the prompt month for both diesel and jet fuel rose to its highest level since September 2019. With stocks unlikely to see a swift replenishment, the global case for oil prices seems to be very bullish. As of Friday, the global benchmark Brent traded around $85 per barrel, whilst WTI was nearing the $83 per barrel mark.

China Announces New Year SPR Release. As part of the ongoing US-led initiative to tame runaway oil prices, China announced it would release crude from its strategic inventories around the Lunar New Year, without specifying the exact quantities.

Spot Asian LNG Price Declines amid Weak Demand. Spot LNG prices in Asia continued their fall this week as ample inventories and above-average warm weather kept buying activity subdued, with March ‘22 delivery prices already at $25 per mmBtu.

Fire Blasts Kuwait’s Main Refinery. A blast has rocked Kuwait’s 350,000 b/d Mina al-Ahmadi refinery after a gas liquefaction unit caught fire, with two victims reported, though export and refinery operations are assumed to be unaffected so far.

Saudi Aramco Buys Stake in Polish Refiner. Saudi Aramco agreed to buy a 30% stake in the Polish company Lotos Asfalt, one of the largest bitumen producers in Europe and owner of the 210,000 b/d Gdansk refinery, whilst also signing a renewed supply deal with Poland to the extent of some 300,000 b/d.

India’s Largest Refiner Goes Green. India’s largest private refiner Reliance Industries (NSE:RELIANCE) will set up an $80 billion green fund to expand beyond its flagship oil-to-chemicals business, including the construction of 100GW worth of renewable energy power plants, primarily solar energy.

Related: IEA Says Russia Is To Blame For Europe’s Gas Crisis

LG Energy Solutions Rocks IPO. South Korean battery producer LG Energy Solutions raised $10.8 billion in its initial public offering, the largest IPO in Korean history, paving the way for one of the most-watched listings of 2022 to come on 27 January.

EU Demands Answers from Gazprom. With Russia’s Gazprom (MCX:GAZP) still failing to increase gas flows to Europe, the European Union’s antitrust chief Margrethe Vestager quizzed the gas giant after accusations that it is holding back extra production to keep gas prices elevated.

Microsoft Wants to Produce Jet Fuel Out of Alcohol. Joining the ranks of Shell and Suncor Energy, US software firm Microsoft (MSFT) invested a batch of $50 million in a LanzaJet facility in Georgia that will produce jet fuel from ethanol next year, the largest SAF project in the United States.

New Oil War Shaping Up in East Africa? Kenya has continued exploration activities in a disputed (presumedly oil-prolific) part of the Indian Ocean that the ICJ awarded to neighboring Somalia, with Italian oil major ENI (NYSE:E) spudding the Mlima-1 wildcat last month.

Equinor Suffers Reserve Blow with Mariner. Norwegian oil major Equinor (NYSE:EQNR) said it would face an impairment charge of $1.8 billion after lowering resource and production estimates at the offshore Mariner oil field in the UK Continental Shelf, following further appraisal drilling at the upcoming project.

U.S. to Hold Record Offshore Wind Auction Soon. According to President Biden, the US will hold next month its largest-ever offshore wind auction that could kickstart projects with a capacity of up to 7 GW, located in shallow waters between New York’s Long Island and New Jersey.

Related: Saudis Arabia Reserves $10 Billion To Buy The Stock Market Dip

Venezuela Gasoline Pipeline Explosion Wreaks Havoc. A recent explosion along a major pipeline supplying eastern states with gasoline aggravated the long-standing shortage of transportation fuels in Venezuela, with PDVSA-operated refineries operating at a fraction of their nameplate capacity.

ExxonMobil Launches Appalachian Sale. In yet another episode of US majors divesting non-core assets in the United States, ExxonMobil (NYSE:XOM) started off the sale of its shale gas properties in the Appalachian Basin, currently producing some 81 million cubic feet per day.

Saudi Arabia Wants to Become Uranium Powerhouse. Although there are no official figures on Saudi Arabia’s uranium reserves, the desert kingdom has launched a new mining program to kickstart uranium mining to feed its assumed 17 GW fleet of plants by 2040 and potentially become a major exporter.

By Tom Kool for Oilprice.com