Goff Heating Oil Market Price Information
Oil Market, Exchange Rate and Heating Oil Price Information January 2022.
Brent Crude Dated ($ per Barrel)
Price at Start of Month: $76.93 Price at End of Month: $92.46
Highest Price in Month: $92.46 Lowest Price in Month: $76.93
Pound £ to US Dollar Rate $ Exchange Rate FT:
Start of Month: 1.3553 End of Month: 1.3417
Kerosene (Heating Oil) Cargo Price $ per tonne
Start of Month: $730.25 End of Month: $840.75
Highest Price in Month: $848.50 Lowest Price in Month: $730.25
Resulting in a Heating Oil Price (Pence Per Litre) Monthly range: 7.50 ppl
Market Commentary on the Newsfeeds:
2020 and 2021 were consistent in providing volatile price movements in crude oil markets, causing UK fuel prices to fluctuate aggressively and generally climb higher. A 3yr Brent chart captures the unusually high volatility caused by fluctuations in the global economic outlook.
2022 Oil Market Outlook:
The outlook for the oil market is intrinsically linked to global demand. The greatest risk to demand remains Covid-19 however many analysts expect the economic impact of the Omicron variant to be short lived and for global growth to exceed 4% in 2022. The initial market sell-off towards the end of 2021 pointed to market jitters from the new variant but with Brent beginning the year on an upward trajectory, having made gains over the festive period, these jitters appear largely abated for now. With the growing belief now that Covid is endemic, the thinking is that developed economies are better equipped to fight the virus which suggests the economic impact of potential future variants could be limited.
Looking back, the second half of 2021 was dominated by inflation, fuelled by the spike in energy prices – most crucially, Natural Gas. As this trend is expected to continue into 2022, we expect additional demand to come from producers shifting their inputs from gas to oil.
OPEC+ has been consistent and cautious with its production policy since the start of the pandemic and it appears that this approach looks set to continue into 2022. At the beginning of the year, the group chose to maintain its policy by increasing supply by 400,000 barrels per day. This appears to reflect the view that the Omicron variant will not have a major impact on global oil demand.
Given the continued unwinding of OPEC+ supply cuts, along with strong non-OPEC supply growth, the global oil market could return to surplus and could serve to keep the market trading back towards the 2021 highs. There however remains a question of how much spare capacity OPEC+ has to meet its supply targets. Recent data points to several smaller producers whose output is below their agreed levels, suggesting they do not have the capacity to increase output further. If output capacity is overestimated, this could contribute to upside risk for the market.
Covid related restrictions have had a severe effect on air travel and consequently jet fuel – a huge component of oil demand. Analysts argue that if we continue to see a recovery in air travel, particularly as restrictions worldwide continue to ease, higher jet fuel demand will feed into oil prices.
Undoubtedly Covid still poses an unknown to the markets and general optimism for 2022 rests on the crucial assumption that Covid will be kept at bay through the existing policy and vaccination roll-outs.
* OPEC+ is nowhere near pumping to its overall quota
* The coming oil glut could be much smaller than expected and could exert much less downward pressure on oil prices this year
* Demand remains robust as signaled in the six-month futures spread in Brent which has more than doubled since hitting a low point in December
At the start of 2022, Omicron’s surge and record COVID cases in many major economies are combining with an expected oversupply on the oil market to give bears a reason to cheer. Yet, oil prices rose by 5 percent in the first trading week of the year as analysts focused on the possibility that the oversupply may not be as high as predicted a few months ago, also because of very low levels of inventories at the end of 2021. In addition, supply disruptions in Libya and Kazakhstan reminded market players of the volatility of much of the world’s oil production in geopolitically sensitive areas.
COVID developments will continue to be the biggest wild card in the market this year, but average global oil demand in 2022 is expected to exceed the pre-pandemic level from 2019, forecasters and analysts say.
Demand is set to grow even further from 2021 into 2022, barring new mass lockdowns in many places. Supply will no doubt also grow to the point of exceeding demand, most analysts predict. Not only is OPEC+ set to continue unwinding its production cuts, but non-OPEC+ producers—led by the United States—will also raise supply, especially at $80 oil, which means that global crude oil production is set to grow from both OPEC+ producers and those outside the pact.
However, the coming oil glut could be much smaller than expected and could exert much less downward pressure on oil prices this year, some analysts, including Bloomberg First Word oil strategist Julian Lee, say.
OPEC+ Undershoots Oil Production Targets For Months
First, OPEC+ is nowhere near pumping to its overall quota. Depressed investments and a lack of spare capacity at many producers in the pact, especially African OPEC members, have made monthly oil production increases much lower than the allowed 400,000 bpd for OPEC+, of which 253,000 bpd is allocated to the ten OPEC members bound by the pact.
Last month was the seventh consecutive month in which OPEC+ had failed to deliver on its production increase, and the fifth straight month in which it had undershot its target production by more than 500,000 bpd, according to Bloomberg and OPEC data compiled by Bloomberg’s Lee.
OPEC+ produced 625,000 bpd below its overall production target in December 2021, slightly better than the 655,000-bpd shortfall off the target in November, per Bloomberg estimates.
OPEC is not faring much better, with African members dragging output down. According to the monthly Reuters survey, OPEC’s oil production increased by just 70,000 bpd in December from November as the cartel consistently failed to raise its production by 253,000 bpd a month as per the OPEC+ deal.
Moreover, although the group still expects a surplus on the market this year, it could be a smaller one compared to last month’s assessment. OPEC+ continues to see the Omicron impact on demand as “mild and short-lived,” just as OPEC said in its Monthly Oil Market Report (MOMR) in mid-December.
Spare Capacity Is Shrinking
Yet, all oversupply models rely on the assumption that OPEC+ will actually deliver on its production target—something it has not done for seven consecutive months.
OPEC+ has been undershooting its collective production targets for months and will likely continue to do so in the months ahead. African OPEC members lack the capacity and investments to boost production, while Russia is estimated to pump and export lower volumes than its quota. The underproduction could even become a major upside for oil in 2022, especially if Omicron’s dent to global oil demand remains limited to jet fuel, as the most recent estimates and analyses have shown.
The biggest Arab Gulf producers have the means to raise output and fulfil their OPEC+ quotas, but this, of course, shrinks their spare production capacity, which accounts for the majority of the spare capacity globally.
As recent weeks showed, oil market balances are one conflict in Kazakhstan—or one blockade in Libya—away from turning into deficits. With lower spare capacity, mostly concentrated in Saudi Arabia, the United Arab Emirates (UAE), and Kuwait, a sudden supply disruption in 2022 would push oil prices higher.
“The supply concern which is not going to disappear anytime soon is OPEC spare capacity. There are only a handful of members that have the capacity to increase output, whilst others are failing to meet their agreed production levels due to disruptions and lack of investment,” ING strategists Warren Patterson and Wenyu Yao said on Monday.
Goldman Sachs, for example, is very bullish on oil for 2022 and beyond due to low investment in the sector and the fact that only two oil producers in the world—Saudi Arabia and the UAE—currently have the capacity and the means to pump more oil than they did in January 2020, just before COVID. Everyone else is struggling, Jeff Currie, global head of commodities research at Goldman Sachs, told Bloomberg Television in an interview last week.
“Overall, demand remains robust as signalled in the six-month futures spread in Brent which has more than doubled since the December, omicron demand worry low point,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Monday.
Lower-than-expected supply growth could soon wipe out the certainty of a large oil glut, as uncertainty and volatility will continue to be the only two certain things in oil markets this year.
By Tsvetana Paraskova for Oilprice.com 12th Jan 2022
Crude oil prices could reach $100 per barrel, according to Ninepoint Partners portfolio manager Eric Nuttall, the latest to add to a growing number of analysts expecting three-digit oil prices.
“The oil market remains exceptionally tight,” Nuttall told Bloomberg, adding, “When we look at global oil demand, we’re back to pre-COVID levels. So there are strong reasons to believe the market will continue to grow throughout this year as Omicron passes.”
“But the real story remains on supply. I believe we’re in a structural bull market – a multi-year bull market for oil that will end in all-time high oil prices,” Nuttall also said.
The asset manager’s opinion reflects an overall bullish sentiment on the market, as noted by Barron’s in a report from earlier this week, which saw a growing number of traders betting that U.S. crude could hit $100 a barrel.
The report quoted an RBC Capital Markets analyst as saying, “We have yet to encounter a market bear this year, whether on the commodity side, equity investor or with corporate clients.”
“Over the past week, open interest for June 2022 WTI $100 calls has increased by 10%,” Michael Tran also wrote. “Since September, open interest between $105-$150 per barrel strike prices have increased 14 times.”
Goldman Sachs last month also reiterated its bullish stance on oil, with the bank’s head of energy research Damien Courvalin telling media that “We’ve already had record high demand before this newest variant, and you’re adding higher jet demand and the global economy is still growing. You see how we will average a new record high in demand in 2022, and again, in 2023.”
The most bullish factor for prices, however, at least according to Ninepoint Partners’ Nuttall, is the fact that OPEC is running out of spare capacity.
“The exhaustion of OPEC’s spare capacity - so, as they bring on all that spare curtailed volume - is going to be the most bullish, watershed event in this industry in many, many decades.”
By Irina Slav for Oilprice.com 12th Jan 2022
Following near three weeks of constant rises oil prices fell on Thursday 19th Jan 2022, added to the losses earlier in the session, despite strong demand and short-term supply disruptions continue to support prices close to their highest levels since late 2014.
Brent crude futures fell 0.2% a barrel having dropped more than $1 earlier in the session. The global benchmark touched $89.17 a barrel on Wednesday, its highest since October 2014. U.S. West Texas Intermediate (WTI) crude futures were up 0.1% a barrel, having also shed nearly $1 earlier. WTI climbed to as much as $87.91 on Wednesday, the highest since October 2014.
"The International Energy Agency said global oil demand is on track to hit pre-pandemic levels," analysts at ANZ bank said in a note. "Shorter-term supply disruptions are also helping tighten markets. Brent crude rallied sharply after reports a key oil pipeline running from Iraq to Turkey was knocked out by an explosion."
However, the flow of crude oil through the Kirkuk-Ceyhan pipeline has resumed, after it was halted on Tuesday due to a blast near the pipeline in the southeastern Turkish province of Kahramanmaras, officials said on Wednesday.
Supply concerns have mounted this week after Yemen's Houthi group attacked the United Arab Emirates, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC). Meanwhile Russia, the world's second-largest oil producer, has built up a large troop presence near Ukraine's border, stoking fears of invasion and subsequent supply uncertainties.
Underpinning oil prices is the broad post-coronavirus pandemic recovery in demand for fuel.
OPEC officials and analysts say that an oil rally may continue in the next few months, and prices could top $100 a barrel as demand shrugs of the spread of the Omicron COVID-19 variant.
OPEC+, which groups the cartel with Russia and other producers, is struggling to hit a monthly output increase target of 400,000 barrels per day (bpd).
U.S. crude and gasoline stocks rose while distillate inventories fell last week, according to market sources citing American Petroleum Institute figures on Wednesday.
Crude stocks rose by 1.4 million barrels for the week ended Jan. 14. Gasoline inventories rose by 3.5 million barrels while distillate stocks fell by 1.2 million barrels, according to the sources, who spoke on condition of anonymity.
* The current move in oil prices is largely attributed to geopolitical risk.-
* The next major move in oil could be triggered if inventories fall to critical levels.
* Wall Street’s consensus seems to be that Brent will reach $100 by the summer.
Brent crude touched $90 per barrel briefly this week for the first time in years. This latest jump was attributed to tensions around Ukraine, but this is the most transitory reason for oil price rises. The bigger reasons all have to do with fundamentals. And $90 per barrel of Brent may be only the beginning. A lot has been written recently about OPEC's spare capacity and the not too rosy outlook for it. That spare capacity is in decline for several reasons, but chief among them appears to be underinvestment. As a result, JP Morgan earlier this month warned that Brent could rise to $125 per barrel as OPEC's spare production capacity falls to 4 percent of total capacity by the fourth quarter of 2022.
The International Energy Agency has gone even further, warning OPEC spare capacity could fall by half to just 2.6 million bpd in the second half of the year. The agency then went on to say that, "If demand continues to grow strongly or supply disappoints, the low level of stocks and shrinking spare capacity means that oil markets could be in for another volatile year in 2022."
It is not just OPEC, however. The biggest non-OPEC producer of oil—and biggest oil producer globally—is pumping less than it can. Pressure from shareholders on public oil majors in the United States has increased, as has an insistence that companies focus on greening up their operations instead of looking for more oil and gas to extract. As a result, the U.S. is pumping less oil than it could and, many would argue, should.
As a result, the stage seems set for another expensive year in oil, which happens to coincide with an expensive year overall as central banks begin tightening monetary policies in response to stubborn inflation that, like the IEA's oil demand forecasts from the early days of the pandemic, proved to be far from the transitory glitch the Fed said it was last year.
"The oil market is heading for simultaneously low inventories, low spare capacity and still low investment," Morgan Stanley analysts wrote in a note cited by the Wall Street Journal this week, summing up the situation quite nicely. In this situation, $90 for a barrel of Brent may be just the beginning.
Indeed, the Wall Street consensus seems to be that Brent will reach $100 by the summer because of all the reasons listed by Morgan Stanley and also because breakeven costs are also on the rise, thanks to inflation trends and labor shortages, at least in the United States. Yet the biggest driver of prices will remain physical demand.
The International Energy Agency admitted physical oil demand has proven stronger than previously expected in its latest Oil Market Report. Based on this surprising turn of events, the IEA revised up its 2022 oil demand forecast by 200,000 bpd. And based on its track record, it might well turn out it has once again underestimated demand robustness. Even with this estimate, oil demand will not only return to pre-pandemic levels but exceed them, reaching 99.7 million bpd by the end of the year.
In such a situation, higher prices for oil are all but certain since there is precious little—bar another round of lockdowns which is highly unlikely—anyone can do about them. The question, then, becomes how high oil can go before it begins to go down?
The answer is tricky. U.S. public oil companies are still beholden to their shareholders, who seem to be taking to heart forecasts that oil has no long-term future. They have limited space for doing what they want. Private companies will be drilling as WTI continues climbing higher. And OPEC will be drilling as well, but it may choose to keep controls on production rather than switching to "pump at will," mostly because only a few OPEC members actually have the capacity to pump at will.
Excessively high prices tend to discourage consumption, regardless of the commodity whose prices are getting excessively high. However, there is a caveat, and it is that the commodity must have a viable alternative to discourage consumption when prices rise too high. Judging from Europe's nightmare autumn and winter this year, alternatives to fossil fuels are not yet up to par. This basically means that the impact of high oil prices on demand will be slow to manifest and slow to push prices down.
Where does this leave the world? The short answer is "Not in a good place." Higher oil prices will lift the prices of everything else, and this is the last thing you want—if you're a government—when you're already struggling with inflation. It may well be that the pandemic will end for good this year, but the real fallout from it may only be starting to show.
By Irina Slav 30th Jan 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: