Heating Oil Price and Oil Market Information March 2022

Goff Heating Oil Market Price Information

Heating Oil Price and Oil Market Information March 2022

Brent Crude Dated ($ per Barrel)

Price at Start of Month: $103.26                            Price at End of Month: $109.98

Highest Price in Month: $137.32                            Lowest Price in Month: $103.26

Pound £ to US Dollar Rate $ Exchange Rate FT:

Start of Month: 1.3352                              End of Month: 1.3574

Kerosene (Heating Oil) Cargo Price $ per tonne  

Start of Month: $990.00                                           End of Month: $1137.75

Highest Price in Month: $1380.50            Lowest Price in Month: $969.25

Resulting in a Heating Oil Price (Pence Per Litre) Monthly range: 25.23 ppl

 

Market Commentary on the Newsfeeds:

Brace For High Oil Prices, Inflation, And An Economic Slowdown

• *The global economy had only just begun to recover from the pandemic when Putin decided to invade Ukraine, sending oil prices soaring.

• *Hedge funds and analysts appear very bullish on oil prices, with predictions varying from $150 all the way up to $300 oil.

• *If things continue as they currently are, the Fed may well be forced to raise rates while going into a recession, and consumers will have to brace for more pain.

•  

With Brent crude climbing steadily towards $130 per barrel, fears of an economic slowdown and even a slip into recession have reared their heads among traders, very likely reinforced by warnings of food supply troubles because of the war in Ukraine. It seems like everything is going wrong at the same time.

Oil prices soared as soon as Russia invaded Ukraine in what it euphemistically called a “special military operation” aimed at “demilitarizing” its eastern neighbor. As the conflict escalated and the West began implementing sanctions on Moscow, fears grew over potential action against Russia’s oil industry, which supplies around 7 percent of the world’s crude and is the biggest exporter of crude oil and oil products taken together.

Talks about oil sanctions marked the start of the week, and the market response was a sharper rise in oil prices. So far, nothing surprising. According to data about hedge fund buying activity in oil contracts, however, there are fears of a global economic slowdown, and while also unsurprising, this is most unwelcome.

In his weekly column on hedge funds and oil buying, Reuters’ John Kemp said the industry remained very bullish on oil, with the ratio to bearish positions at 7:1. This ratio signals that hedge funds are following recent geopolitical events in Europe closely, but they will be watching for demand destruction as oil prices remain elevated.

As oil prices rise, eventually, they tend to reach a certain point when demand destruction begins either through fuel conservation, as Reuters’ Kemp noted in his column, or simply because expensive fuels make everything else more expensive and discourage spending.

Yet such a trend would come at a very bad time for world economies. While news about Covid-19 all but dried up overnight with the Ukraine invasion, economies are still struggling with the pandemic. The United States, the world’s largest oil consumer as well as producer, booked an inflation rate of 7.5 percent for January—the highest in almost 40 years—and analysts now expect this to have risen closer to 8 percent in February.

Meanwhile, oil is not the only commodity on the rise. Wheat prices hit a record high amid the Russian-Ukraine conflict as the two are major exporters. Russia, the world’s largest exporter of the staple, has been heavily sanctioned in ways that make it a challenge to lift wheat cargos from the country. The 50-percent jump in wheat prices since the start of the invasion is making wheat more unaffordable. Add food insecurity to soaring oil prices, and a recession looks increasingly likely for many economies.

Perhaps even worse is the fact that, according to some analysts, this is not the end of the rally for oil. Giovanni Staunovo from UBS, for instance, forecast oil could stabilize around $125 per barrel unless the war drags on, in which case disruptions to global supply would persist, pushing oil to $150 per barrel.

According to Russia’s Deputy Prime Minister Alexander Novak, if the West sanctions Russian oil exports, the price for the commodity could reach $300 per barrel, and although this is quite an unlikely scenario, in reality, oil prices do seem to have quite a while left to rise.

The way things are going now, $200 per barrel is a clear possibility, according to Jeffrey Gundlach from investment firm DoubleLine. Speaking to TIFIN, Gundlach said that oil is on its way to $200, and the Fed may be pressed to raise rates while the country is going into a recession, which, he noted, had never been done before. Gundlach also said it was time to admit the U.S. was going into stagflation, and the latest increase in gas prices was only the beginning of the pain.

By Irina Slav for Oilprice.com 8th March 2022

Europe Is Rushing To Overhaul Its Energy Security Strategy

By Tsvetana Paraskova for Oilprice.com 8th March 2022 Mar 08, 2022, 7:00 PM CST

• *Europe receives some one-third of its natural gas from Russia, but the dependence varies among EU members.

• *Russia's invasion of Ukraine and the concern over natural gas and oil supply urged European countries to overhaul their energy security strategies.

• *European Commission: Europe can survive next winter without Russian gas.

• Moving away from Russian gas could come at a very high price.

•  

It took a war in Europe for the first time since WWII for the European Union to realize that Russia is not the reliable energy supplier Moscow has always claimed to be, and many officials in Europe have believed. Russia's invasion of Ukraine and the concern over natural gas and oil supply to Europe prompted the EU and the biggest economies in Europe dependent on Russian gas to urgently overhaul its energy security strategies.

By most estimates and forecasts from the European Commission and analysts, Europe can survive next winter without Russian gas. However, ditching Russian energy dependence beyond next winter will be a challenge for the EU and many major European economies, including the biggest, Germany, which imports half the gas it needs from Russia.

As the war in Ukraine threatens to cut off Russian gas supply—either in the form of sanctions or a Putin retaliation to sanctions—Europe realized that ensuring energy security would mean weaning itself off Russian deliveries in the quickest way possible, even at a high economic price.  

High Price To Pay

The price will indeed be high, especially in light of the already high energy prices in Europe even before Russia's invasion of Ukraine, which had put cost pressures on many industries, not to mention the cost-of-living increases with soaring energy costs for households.  

Europe receives some one-third of its natural gas from Russia, but the dependence varies among EU members. Germany is 50-percent reliant on Russian gas, and Italy imports around 40 percent of its gas needs from Russia. Southwest European countries Spain and Portugal do not import any Russian gas, but southeast European countries and Russia's neighbors to the west, Estonia and Finland, are 100 percent or nearly 100 percent dependent on Moscow for their natural gas supply. 

Early on Monday, natural gas prices in Europe shot up to a new record high - the third consecutive trading day in which gas prices in Europe beat all previous records - as the U.S. and Europe discuss measures to restrict Russia's oil and gas revenues.

European allies, however, are not currently on board with banning imports of Russian oil and gas. Germany said it clearly:

"Currently, there is no other way to secure Europe's supply of energy for heat generation, mobility, power supply, and industry," German Chancellor Olaf Scholz said on Monday.

Despite the fact that Germany has been working within the EU and beyond to procure alternatives to Russian energy supply, this doesn't happen overnight, Scholz added.

"It is therefore our conscious decision to continue doing business with Russian energy," the German chancellor said.

In Italy, Energy Transition Minister Roberto Cingolani told state TV Rai on Monday that Rome would replace around half of its imports from Russia by the middle of this year.

But Italy – unlike many other EU countries east of it – already has working alternatives routes for gas from other suppliers such as Algeria and the Trans Adriatic Pipeline (TAP) from Azerbaijan.

Some EU members are entirely dependent on Russian gas, and reducing that dependence would need a lot of EU and supra-government coordination and solidarity to send (if possible) gas where it's needed. And a lot of money, of course.

New Energy Security Strategies

The Russian invasion of Ukraine prompted all European governments to revise their energy strategies, which are now geared toward freeing themselves from Russian energy dependence and Russian blackmail with natural gas deliveries.

Case in point: Russia's Deputy Prime Minister Alexander Novak said on Monday, that Russia could cut natural gas supplies to Germany via the Nord Stream 1 pipeline.

"In connection with unfounded accusations against Russia regarding the energy crisis in Europe and the imposition of a ban on Nord Stream 2, we have every right to take a matching decision and impose an embargo on gas pumping through the Nord Stream 1 gas pipeline," Novak said in a state television broadcast on Monday, adding that "so far, we are not taking such a decision."

In the wake of the Russian invasion of Ukraine, Germany announced last week it was changing course "in order to eliminate our dependence on imports from individual energy suppliers," Chancellor Scholz said. Germany will build two LNG import facilities, at Brunsbuettel and Wilhelmshaven, and look to speed up the installation of renewable energy capacity to have 100-percent renewable power generation by 2035. 

Within the EU, the war in Ukraine prompted officials to advocate for a faster deployment of renewable energy sources.

"The only way that we cannot be put under pressure from being Putin's customer is to no longer be his customer for our essential energy resources. The only way to achieve that is to speed up our transition to renewable energy resources," Frans Timmermans, the European Commission's Executive Vice-President for the European Green Deal, said on Monday.

The European Commission is unveiling proposals "to quickly get rid of our dependency on Russian fossil fuels," European Commission President Ursula von der Leyen says, noting that this would entail diversifying suppliers, taking in more LNG, investing in renewables, and improving energy efficiency.

The International Energy Agency also unveiled a plan which, the IEA says, could help the EU reduce its reliance on Russian gas by more than one-third within a year by turning to other suppliers and using other energy sources.

The EU's own strategy is set to include cutting dependence on Russian gas by 80 percent this year, Bloomberg reported on Monday, citing officials with knowledge of the plans.

As admirable as those plans are, if gas supply from Russia stopped now, industries and households in Europe would suffer, and economies would plunge into recession, according to analysts at Bloomberg Economics.

Europe has realized it cannot depend on one energy supplier, but it will take a lot of effort and money to cut Russia off.   

By Tsvetana Paraskova for Oilprice.com  8th March 2022

 

Why Oil Crashed Back Below $100

• After a torrid three-week rally, energy markets have entered correction mode, with prices moving sharply lower. Over the past week, Brent has slipped 30% from the 7 March intra-day high while European gas prices have declined 65%.

Brent for May delivery settled at USD 106.90 per barrel (bbl) on 14 March, a w/w fall of USD 16.31/bbl, and moved below USD 100/bbl in early trading on 15 March. WTI for April delivery fell USD 16.31/bbl w/w to USD 106.90/bbl at settlement on 14 March, while the value of the OPEC basket fell by USD 15.84/bbl to USD 110.67/bl and by EUR 15.40/bbl to EUR 101.16/bbl. 

You can blame speculative overshoot for the unfolding scenario though the overall outlook remains bullish.

According to Standard Chartered commodity analysts, the correction tells us more about market positioning and the effect of extreme volatility than it does about changes in fundamentals over the past week. 

The increase in volatility across financial and commodity markets has led to a sharp rise in the level of risk held by traders, and an associated incentive to close out some positions to lower the risk. Oil traders have mostly been positioned with a highly bullish bias in terms of both outright positions and spreads in recent weeks, meaning optimization in a higher-risk environment has mostly involved closing out prompt longs. With speculative shorts being very thin on the ground currently, there have been few natural buyers, and the downside has quickly opened up. While the price ranges involved have been rather extreme, recent price dynamics bear all the hallmarks of a textbook speculative overshoot followed by the correction necessary to reset extreme positioning. 

The irony of the situation is that the dominance among oil traders of the belief that prices could only move higher has led to a position from which market dynamics dictated that in the short term, prices could only go lower.

Replacing Russian Oil

Despite the positioning-led price fall, StanChart says that the key fundamentals are largely unchanged and are also subject to an unusually high level of uncertainty. 

According to commodity analysts at Standard Chartered, Russian oil flows to Europe can be replaced in the short term, with the short-term price implications of that displacement potentially capable of being minimized by the extent to which OPEC members increase output beyond their current OPEC+ targets, and also by the possibility of a successful conclusion to talks in Vienna that results in higher volumes of Iranian exports.

The analysts have projected that consumer reluctance to buy from Russia coupled with shortages of capital, equipment, and technology will continue to depress Russian output over at least the next three years. Russian output is expected to fall by 1.612 million barrels per day (mb/d) y/y in 2022, and by a further 0.217mb/d in 2023, with the y/y decline peaking at 2.306mb/d in Q2-2022. To avoid significant upside price pressure, StanChart reckons that the market would require around 2mb/d extra supply for the remainder of 2022, and an additional 2mb/d in Q2 to ease the dislocations caused by the displacement of Russian oil. The temporary 2mb/d Q2 boost could come from strategic reserves, but the 2mb/d additional flow for the remainder of 2022 would likely need to come from OPEC sources (including potentially Iran).

Market tightness is, however, being helped by the fact that withdrawal from Russian markets has been less dramatic than anticipated.

So far, there are indications that some of the larger EU countries are less keen than countries in the east of the EU to pursue the fastest possible reduction in Russian oil flows. Outside of the EU, the UK’s ban on the import of Russian oil has proved less dramatic than the headlines that accompanied the initial announcement, as it does not take effect until the end of 2022. In the private sector, while several companies have given assurances they will buy no more Russian oil on the spot market, there have been very few indications given about if, when, and how they will cut the volume of Russian oil purchased through their term contracts. Meanwhile, statements from some governments and some companies do appear to have become less hawkish over the past week, with an apparent lengthening of the timespan envisaged for the process of reducing dependence. 

StanChart says that Russian oil trade into Europe appears to be moving further into the shadows of term contracts and a greater reliance on third-party trading intermediaries. That does not make trading with Russia any less distasteful for European public opinion, but it does make the trade less visible and thus likely keeps oil flows from Russia higher than they would have been with more direct government targeting of those flows.

By Alex Kimani for Oilprice.com 16th Mar 2022

 

Rationing Looms As Diesel Crisis Goes Global

*Russian refiners cut processing rates of diesel fuel.

*Already tight diesel supply is getting even tighter.

*Vitol’s chief executive Hardy: diesel supply shortage could trigger rationing in Europe

Earlier this week, Vitol's chief Russell Hardy warned that a diesel shortage could trigger fuel rationing in Europe. Now, those warnings are multiplying, with fuel rationing no longer looking like an abstract idea. Europe is risking a blow to its economic growth, Reuters reported on Thursday, citing experts. Diesel is what freight transport uses to deliver goods to consumers, but it is also what industrial transport uses for fuel. With Russian refiners cutting their processing rates in the wake of several waves of Western sanctions, already tight diesel supply is going to get a lot tighter.

"Governments have a very clear understanding that there is a clear link between diesel and GDP, because almost everything that goes into and out of a factory goes using diesel," the director general of Fuels Europe, part of the European Petroleum Refiners Association, told Reuters this week.

As Vitol's Russell Hardy noted earlier this week, "Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East. That systemic shortfall of diesel is there."

Europe is not the only one feeling the diesel pinch, however. Middle distillate stocks are on a decline in the United States, too, Reuters' John Kemp wrote in his latest column.

Distillate inventories, according to EIA data, have booked weekly declines for 52 of the last 79 weeks, Kemp reported, falling to 112 million barrels last week. The total decline for the last 79 weeks amounts to 67 million barrels. Last week's inventory level was the lowest since 2014 and 20 percent lower than the five-year average from before the pandemic.

"Diesel is not just a European problem, this is a global problem. It really is," said Gunvor co-founder and chair Torbjorn Tornqvist at the FT Commodities Global Summit this week.

Energy Aspects' Amrita Sen echoed the sentiment, saying that the diesel shortage was the worst affected oil product, noting that Europe imported close to 1 million barrels daily of Russian diesel and that at the time of the Russian invasion of Ukraine, inventories of the fuel were already much lower than the seasonal average.

The problem seems to be that diesel stocks were already tight globally when Russia invaded Ukraine and the West responded with sanctions that, although indirectly, targeted its energy industry. In addition to that, according to Vitol's Hardy, there had been a shift in Europe from gasoline to diesel, which has further exacerbated the problem.

Then there are the commodity traders who are shunning Russian diesel because of the sanctions as well as payment headaches and transportation challenges as many European ports have banned Russian vessels from docking.

TotalEnergies is the latest: the French supermajor has said it will be suspending purchases of Russian diesel "as soon as possible and by the end of 2022 at the latest", the company said, unless it receives other instructions from European governments.

Instead of Russian diesel, TotalEnergies said it would switch to other suppliers, notably Saudi Arabia. It will hardly be the only one to look for alternative suppliers. It looks like a hunt for diesel is in the making, if not already fully underway.

Meanwhile, the alternative suppliers may not have enough to respond to the spike in demand in short order: Saudi Arabia is already Europe's second-largest diesel supplier after Russia but compared to its 50-percent share of the EU diesel import market, the Kingdom only has a 12-percent share.

Per Kemp's report, Asian diesel inventories are also tighter than usual, meaning all large markets for middle distillates are experiencing a shortage. This is pushing all oil prices higher, Kemp noted in his column but this is only the beginning of a bigger problem.

In addition to freight transport, diesel is the fuel used to power mining and agricultural equipment, and it is also used in manufacturing. With prices for the fuel higher, the prices of the end products will also climb higher, fueling the inflation that has turned into a major headache for Europe and the United States.

Boosting local diesel production is another option, but according to experts, they would be buying their crude oil at higher prices, and the end product will, yet again be more expensive. What's more, this ramp up of middle distillate production will take time to materialize.

"Over the next three months, diesel output needs to accelerate significantly, consumption growth must slow, and the market must avoid a significant loss of Russian exports," Kemp wrote. That would be a best-case scenario and if it does not play out, Europe in particular is in for "a severe price spike" that would result in demand depression.

Before the demand depression comes, however, inflation could enter double-digit territory in some of the most vulnerable countries. And if Moscow decides to extend its demand for ruble payments for gas to its oil exports, the situation will become even more interesting than it already is, especially for Europe.

By Irina Slav for Oilprice.com 27th March 2022

Additional Oil Market commentary & Market Data available from the BBC here: Market Data

The Office for National Statistics record the price of heating oil and publish monthly updates on the average delivered cost of a domestic delivery of 1000 litres of kerosene in the UK . The information held by the ONS is freely available online and can be found here:  ONS Price of heating oil

Last month’s oil market report can be found here:

Heating Oil Price, Oil Market & Exchange Rate Info Feb 2022. - Goff Petroleum