Oil Continues to Trade on Headlines

(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 focus on oil and gas price trends, Strategic Petroleum Reserve contract awards, refinery closures and more. Read on for more detail.

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

Jon Donnel, Managing Director, B. Riley Advisory Services: Oil continues to trade on headlines, dropping at the beginning of the week on worries that additional Covid lockdowns in China could hurt demand, only to rebound over the course of the week as Germany backed off on its opposition to an embargo of Russian oil, potentially creating more supply bottlenecks going forward. The Wednesday supply update showed another drop in both gasoline and diesel stocks in the U.S., pressuring prices at the pump. Oil prices have remained in the $100 per barrel range despite the massive, coordinated release of strategic reserves and the U.S. dollar (DXY) approaching 20-year highs, suggesting the underlying supply/demand fundamentals remain strong for operators and service companies longer-term.

Hillary Stevenson, Director, Industry Relations at oil and gas data firm Validere: DOE SPR barrels awarded to foreign buyers. The DOE issued contract awards for 30 million barrels of SPR crude associated with the April 1 Notice of Sale. Of the 12 companies awarded, only two companies with a total 6.425 million barrels have refining operations solely in the U.S. The other 23.575 million barrels could be headed to foreign destinations. Valero, a refiner with U.S. and European refineries, was awarded the largest amount at 6.85 million barrels. To facilitate these SPR sales, the Louisiana Offshore Oil Port (LOOP) is offering segregated storage beginning in May at $0.05/barrel for the first 30 days, a third of the cost of tank storage at Cushing. Barrels stored at LOOP could be exported on a VLCC or loaded onto smaller vessels at St. James, Louisiana. Will be keen to see if LOOP exports increase in May/June.

Rigzone: What were some market surprises?

Donnel: It has been reality for a couple of weeks, but it is still surprising to see front-month natural gas prices with a $7 handle, especially during April. Storage levels are over 20 percent lower year-over-year and are near the bottom end of the five-year range, so don’t expect much relief over the coming months as temperatures begin to increase. Ongoing global supply disruptions, the most recent being Russia’s decision this week to cut off deliveries to Poland and Bulgaria, will further support prices and drive electricity costs higher for the foreseeable future.

Stevenson: Another U.S. refinery is planning to close its doors despite expectations for strong first quarter 2022 earnings. Lyondell’s 268,000 barrel per day Houston refinery is set to close by 2024 due to lack of buyer demand. The 100+ year old refinery is designed to process heavy-sulfur crude oil with multiple crude trains and coking capabilities. Lyondell adds to a growing list of U.S. refinery closures with U.S. operable crude distillation capacity down over one million barrels per day from the high of 18.976 million barrels per day in 2020. Operating refiners are on track to reap profits from higher fuel margins and post-pandemic demand.

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