Kazakhstan Unrest Prompts Oil Export Concerns

Kazakhstan Unrest Prompts Oil Export Concerns
Rigzone's regular market watchers look at the civil unrest in Kazakhstan, the latest OPEC+ meeting, pandemic effects and more.

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)

In this week’s edition of oil and gas industry hits and misses, Rigzone’s regular market watchers look at the civil unrest in Kazakhstan, the latest OPEC+ meeting, pandemic effects and more. Read on to find out what they had to say.

Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?

Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: Global oil market participants, including OPEC+, continued to downplay the possible demand destruction of the Omicron variant while the civil unrest in Kazakhstan over rising energy prices prompted concerns regarding that country’s oil exports. Kazakhstan, while not an OPEC member, is part of the OPEC+ group and produces roughly 1.6 million barrels per day. This week’s rally started out as traders eyed lower output from Libya as well as the expectation that the OPEC+ group would continue their monthly production increases of 400,000 barrels per day in February as they see a tighter supply/demand balance upcoming in 1Q22. Meanwhile, a less-than-forecasted draw in crude inventories, coupled with large increases in products stored, failed to put any bearish sentiment into the market. WTI crested the $80 per barrel mark while Brent edged closer to the $83 per barrel level. Both grades should end the week in positive territory.

This week’s EIA weekly petroleum status report indicated that commercial crude inventories fell last week by 2.1 million barrels to 418 million barrels, a three month low and now eight percent below the average for this time of year. The API reported that inventories decreased by 6.4 million barrels while WSJ analysts called for a drop of three million barrels. Refinery utilization rose slightly to 89.8 percent from 89.7 percent. Total motor gasoline inventories rose by 10.1 million barrels and are now four percent below the five-average for this time of year. Distillate inventories increased 4.4 million barrels but fell to 16 percent below the five-year with three full months of winter remaining. Crude oil stocks at the key Cushing, OK, hub gained 2.6 million barrels to 37.3 million barrels, or about 49 percent of capacity there having now had eight straight weeks of increases. 1.35 million barrels was withdrawn from the U.S. Strategic Petroleum Reserve, which now stands at 594 million barrels. Exxon was given another SPR oil loan of two million barrels as part of the exchange program announced in November.  U.S. oil production held steady at 11.8 million barrels per day vs 11 million barrels per day at this time last year. The U.S. rig count was steady last week at 586 combined but 236 higher than last year. For December alone, the industry added 17 rigs, the 17th straight month of increases.

Jet fuel demand proved to be less than anticipated over the entire holiday period. The 1.47 million barrels per day during the last four weeks was less than the 1.55 million barrels per day the prior period and the 1.8 million barrels per day for the end of 2019. Additionally, a Gallup reported that 2021 was a new low for air travel in the U.S. Gasoline demand last week fell to its lowest level since last February hinting that Omicron is starting to impact commuter miles. Yet gasoline prices remain on the uptick as the U.S. national average at the pump is now $3.30 per gallon, +$1.03 per gallon vs. a year ago.

The Dow and S&P notched new highs this week but all three major U.S. stock indices look to settle lower on the week. The U.S. Dollar traded higher but has not hurt crude’s rally.

Jon Donnel, Managing Director, B. Riley Advisory Services: No drama at the OPEC+ meeting this week with the group quickly agreeing to maintain plans to increase production by 400,000 barrels per day in February. New Covid cases hit record levels as the Omicron variant continues to spread rapidly all over the globe, but as symptoms appear relatively benign compared to prior strains, demand continues to trend in a positive direction. The nominal OPEC+ supply adds have become almost pro forma at this point, but indications are spare capacity is becoming more difficult to tap into, especially for the African members. This has supported crude prices and is worth monitoring as we begin the new year. Should the cartel find difficulty in meeting supply targets, a need for incremental drilling (and fresh capital) could arise for U.S. producers.

Barani Krishnan, Senior Commodities Analyst at investing.com: Very few market expectations actually occurred over the past week, actually. Weekly U.S. crude stockpiles fell less than expected and stockpiles of gasoline, also known as petrol outside the United States, rose by an eye-watering 10 million barrels - the most since April 2020, when demand for fuel cratered at the height of the coronavirus pandemic. Weekly stockpiles of distillates - turned into diesel for trucks, trains and ships and jet fuel for airplanes - also saw a beefy build.

Rigzone: What were some market surprises?

Seng: No one saw the unrest in Kazakhstan leading to the resignation of its government thereby causing concerns about the country’s oil output. The OPEC+ group and crude traders in general continue to discount the impact that Omicron could have on demand.

Donnel: The weekly EIA supply estimates report was bearish, particularly related to gasoline (+10 million barrels) and distillate (+four million barrels) stocks. Year-end inventory levels can be distorted due to tax implications, but demand was also down according to the product supplied data from the same report. Despite that, crude prices continued to rally after the mid-week update with WTI trading above $80 for the first time since November. The global supply/demand balance appears to be rather tight, setting up well for crude prices into the new year.

Krishnan: After all the optimism about runaway fuel demand in 2022, the year opened on a bummer note for oil bulls as data showed weekly U.S. gasoline stockpiles growing by their highest in 21 months as 2021 ended. The longs in the market, of course, lapped up the data in their stride, doubling down on positions and buying every dip to send a barrel back to above November highs of above $80. In the bulls corner was also strong U.S. jobs data for December, due by the end of the week, and turmoil in Kazakhstan that played up the geopolitical premium in oil.

To contact the author, email andreas.exarheas@rigzone.com

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