2024.12.16

Oil Prices Surge 2%, Reach 3-Week High Amid Sanctions and Economic Stimulus Expectations

Oil prices rose about 2% on Friday, reaching a three-week high, driven by concerns over potential supply constraints due to new sanctions on Russia and Iran. Brent crude closed at $74.49 per barrel, up 5% for the week, while U.S. West Texas Intermediate (WTI) rose to $71.29 per barrel, marking a 6% weekly gain.

Key factors influencing the surge include:

• The European Union's 15th sanctions package targeting Russia's shadow tanker fleet and potential U.S. sanctions on Iran.

• China's increased crude imports and economic stimulus measures, which are expected to sustain demand growth.

• Anticipation of U.S. Federal Reserve and European Central Bank interest rate cuts, which could boost economic activity and oil demand.

Despite short-term gains, the International Energy Agency (IEA) predicts a global oil surplus in 2025, as non-OPEC+ nations ramp up production. OPEC+ members, including the UAE, are expected to reduce shipments to maintain market balance.

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China’s Oil Consumption Peaks in 2023, Decline Projected Amid EV Growth and Energy Transition

China’s refined oil consumption peaked in 2023 at 399 million metric tons (7.98 million barrels per day) and is forecast to decline by 1.3% to 394 million tons in 2024, according to CNPC Economics & Technology Research Institute. This marks a pivotal shift for the world’s largest crude importer, signaling a transition away from decades of rising oil demand.

Key projections include:

• Decline in Transport Fuel Demand: Gasoline and diesel consumption are expected to drop 35-50% by 2035 due to the rise of electric vehicles (EVs) and alternative-fuel trucks. EVs are predicted to account for half of China’s car fleet by 2035.

• Growth in Aviation and Petrochemical Sectors: Jet fuel demand is expected to rise 70% by 2035 due to increased aviation activity. Meanwhile, oil-based feedstocks like naphtha and liquefied petroleum gas (LPG) are forecast to drive demand growth, with feedstock consumption increasing 55% by 2035.

• Refining and Chemical Capacity: China’s refining capacity is expected to peak in 2028, while ethylene production capacity could surpass 90 million tons annually.

This transition reflects China's shift toward cleaner energy sources and the growing dominance of its petrochemical industry in shaping future oil demand.

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Iranian Oil Prices to China Hit Multi-Year Highs Amid Tightened U.S. Sanctions and Rising Demand

Iranian crude oil prices sold to China have reached their highest levels in years as stricter U.S. sanctions on tankers have constrained shipping capacity and increased logistics costs. This has particularly impacted China’s independent refiners, which account for a significant portion of the country’s crude demand.

Key developments include:

• Rising Costs for Iranian Crude: Discounts on Iranian Light crude have narrowed to $2.50 per barrel against ICE Brent, compared to $4 in early November. Similar trends are observed for Iranian Heavy crude.

• Shipping Challenges: U.S. sanctions on 45 of 147 tankers involved in Iranian oil shipments have tightened logistics, with some tankers stranded near Singapore and Malaysia.

• Shift in Supply Sources: Independent refiners are increasingly sourcing crude from the Middle East and West Africa to offset supply constraints and meet seasonal demand.

• Improved Margins for Refiners: Despite higher crude prices, refiners’ profit margins have improved, with gasoline and diesel shipments from Shandong hitting a three-year high in November.

China's overall crude imports grew in November for the first time in seven months, driven by increased demand and government-issued import quotas, reflecting a partial recovery in the refining sector.

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Libya Declares Force Majeure at Zawiya Refinery Following Armed Clashes

Libya’s National Oil Corporation (NOC) declared force majeure at the Zawiya refinery after clashes between armed groups caused significant damage to storage tanks. Despite the disruption, fuel shipments to consumers remain unaffected.

Key Details:

1. Incident Overview:

   • A fire broke out early Sunday after storage units were struck by gunfire during clashes west of Tripoli.

   • The fire has been contained, but the storage tanks sustained substantial damage.

2. Nature of the Clashes:

   • The NOC did not identify the armed groups involved.

   • Local media reports suggest the conflict was an intercommunal dispute, unrelated to Libya’s broader east-west political divide.

   • The violence resulted in one fatality and several injuries before calm was restored.

3. Impact on Fuel Supplies:

   • Zawiya refines small quantities of fuel for domestic use and stores larger volumes of imported fuel.

   • According to NOC spokesperson Khaled Ghulam, fuel shipments at the port remain unaffected, and sufficient supplies are in storage to meet demand.

4. Libya’s Broader Context:

   • Since the 2011 ousting of Moammar Qaddafi, Libya has experienced chronic instability and violence.

   • Armed groups frequently target its oil resources, the largest proven reserves in Africa.

5. Oil Production Milestone:

   • Earlier this month, Libya’s oil production hit 1.422 million barrels per day, its highest daily output in over a decade.

Outlook:The NOC has called on the government to intervene and prevent further clashes. Libya’s ongoing instability continues to threaten its oil sector and overall economic recovery.

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Kazakhstan’s Tengiz Oil Field Output Falls 20% Below Plan Amid OPEC+ Compliance

Oil production at Kazakhstan’s Tengiz oil field, operated by Chevron, was 20% below its scheduled plan in December, averaging about 494,170 barrels per day (bpd) compared to the planned 616,700 bpd. This shortfall aligns with Kazakhstan's OPEC+ output target of 1.468 million bpd, helping the country comply with its quota obligations.

Key highlights:

• Maintenance Impact: Production has been recovering since maintenance that began in late October, which reduced November output to 510,000 bpd, a 21% decline from October's average.

• Record Output and Expansion Plans: Tengiz achieved a record output of 699,000 bpd in early October before the maintenance. Chevron and partners plan to increase production capacity to 850,000 bpd by 2025, with an investment of $49 billion.

• Stakeholders: Chevron holds a 50% stake in Tengizchevroil (TCO), Exxon Mobil owns 25%, KazMunayGaz has 20%, and Lukoil holds 5%.

The reduced output underscores Kazakhstan’s adherence to OPEC+ agreements, balancing production limits while preparing for significant capacity expansion.

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US Oil and Gas Rig Count Steady at 589 as Industry Faces Cost and Demand Pressures

The U.S. oil and gas rig count remained unchanged at 589 for the week ending December 13, according to sources. This total is down 34 rigs (5%) from a year ago, reflecting broader industry challenges, including fluctuating prices, rising costs, and a shift in company priorities.

Key details include:

• Rig Count Overview: Oil rigs held steady at 482, while gas rigs rose by one to 103, marking their highest level since July. However, the Eagle Ford shale in Texas saw a decline, with its rig count dropping to 46, the lowest since January 2022.

• Annual Trends: The rig count dropped 20% in 2023 after sharp increases in 2021 (67%) and 2022 (33%). The decline is attributed to falling oil and gas prices, higher operational costs, and a focus on debt reduction and shareholder returns over production growth.

• Production Outlook: U.S. crude output is expected to rise from 12.9 million barrels per day (bpd) in 2023 to 13.2 million bpd in 2024, reaching 13.5 million bpd by 2025. Conversely, gas production is projected to decline slightly in 2024 to 103.2 billion cubic feet per day (bcfd) from the record 103.8 bcfd in 2023, marking the first drop since the COVID-19 pandemic.

These trends highlight the industry’s response to volatile markets, cost pressures, and evolving demand dynamics.