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🛢️ This Week’s Oil Market Updates:

Crude prices remained relatively stable Friday, with Brent futures settling down 3 cents to $93.27/barrel and WTI futures rising 40 cents to $90.03/barrel. 

Both contracts posted weekly declines for the first time in three weeks. 

Brent finished the week down 0.3%, while WTI dropped 0.03%. 

Key supply-side drivers include: 

  • US oil rigs declined by 8 in Baker Hughes’ weekly rig tally 
  • Russia’s temporary ban on diesel and gasoline exports
  • EIA Weekly Report: Declining US crude stocks off of strong exports 

Key demand-side drivers include: 

  • China’s central bank keeps lending rates unchanged 
  • US Federal Reserve officials warned markets of “higher for longer” interest rates 
  • US refineries head into fall maintenance 

Supply Updates: 

On Thursday, Russia announced a temporary gasoline and diesel export ban to countries outside the Eurasian Economic Union, including Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan. 

Domestic shortages of refined fuels led to a spike in wholesale gasoline and diesel prices. The supply crunch has been especially dire for Russia’s grain-producing “breadbasket” regions heading into the autumn harvest. 

Officials say the temporary but indefinite export ban will saturate markets and lower wholesale prices. Russia’s seaborne diesel and gasoline exports declined by 30% to 1.7 million metric tons in the first 20 days of September compared to August.

As the Northern Hemisphere heads into winter, the export ban will force affected countries to bid up already tight supplies from regions like the US and Asia. 

In the EIA’s weekly petroleum status report released Wednesday, US crude inventories fell by 2.1 million barrels to 418.5 million for the week ending September 15th. 

Other key takeaways from the EIA’s report: 

  • US crude refinery runs decreased by 496,000 bpd to 16.3 million bpd
  • Refinery run rates averaged 91.9% of capacity, down by 1.8% for the week 
  • Distillate inventories fell by 2.9 million barrels to 14% below the five-year seasonal average. 

In Baker Hughes’ weekly rig count, US oil rigs fell by 8 to 507 this week. Oil rigs in the Permian Basin declined by 5 to 317 – the lowest since March 2022. 

The EIA’s drilling productivity report released Monday forecasted US oil output will fall for the third month in a row to 9.393 million bpd in October. 

Demand Updates: 

Two monetary policy updates from China are aiding the global crude demand picture. 

Last week, China’s central bank lowered the cash reserve requirement for banks for the second time this year. The lower cash reserve boosts banks’ liquidity, fueling domestic economic activity. 

On Wednesday, China elected to keep benchmark lending rates unchanged at 3.45% for the one-year loan prime rate (LPR) and 4.20% for the five-year LPR. 

The yuan is down more than 5% against the dollar this year, handcuffing the Chinese central bank’s ability to aggressively cut interest rates to boost domestic economic growth. 

If China cuts interest rates while the US maintains or raises its interest rates, the widening yield gap could spark further capital outflows to the dollar as investors seek higher returns.

By keeping benchmark rates unchanged, the Chinese government aims to stoke the embers of its post-COVID economic recovery without further weakening the yuan. 

China’s recovery must navigate the effects of slowing activity in other major global economies. 

US Federal Reserve officials elected to hold interest rates in the 5.25%-5.50% range this week, adding headwinds to oil demand forecasts.

Fed officials tagged the decision with warnings that the benchmark overnight interest rate could still be lifted one more time this year to a peak range of 5.50%-5.75%. Officials said stubborn inflation readings warrant a “higher for longer” monetary policy. 

The takeaway: 

Improving economic data from China and OPEC+ supply cuts are the strongest drivers of a crude supply deficit through 2023. Demand for distillate and gasoline is poised to outstrip tight supplies in Russia, the US, and Asia. Global oil demand faces headwinds from a strengthening dollar and the rising cost of capital in the US and other major economies.


Quick Shots:

🌽 No Climate Benefit for Corn-Based Ethanol?

An advisory board to the US Environmental Protection Agency (EPA) submitted findings via a draft report that there is “a reasonable chance there are minimal or no climate benefits from substituting corn ethanol for gasoline or diesel.” 

The report risks undermining proposed tax credits for corn-based fuels, such as sustainable aviation fuels (SAFs). 

Policies such as the Renewable Fuel Standard (RFS) and President Biden’s 2022 Inflation Reduction Act opened funding for corn-based ‘sustainable’ fuels. 

The RFS mandates required levels of biofuel blending in gasoline. Refiners that opt out of the RFS blending requirement must purchase compliance credits called RINs.

The Inflation Reduction Act opened more than $500 million in funds for ethanol infrastructure and sustainable fuels. 

🏭 Canadian CCS Project Requires Federal Guarantee

On Wednesday, a consortium of Canada’s major oil producers said the group would only proceed with a $12.27 billion carbon capture and storage (CCS) project if the federal government signs a contract to lock in future carbon prices. 

The consortium, Pathways Alliance, plans to build a CCS hub to capture emissions from 14 projects in northern Alberta by 2030. Pathways estimates the project could sequester 14 million metric tons of carbon per year. 

The proposed federal guarantee would lock in future revenues for the project by securing a minimum price for carbon captured. 

🚢 Russia’s New Export Routes

Last year, Western policymakers slapped sanctions on Russia’s crude exports, intending to cut revenues fueling the ‘special operation’ in Ukraine. 

The impact on Russian petroleum revenues has been marginal nearly ten months later. 

What those sanctions have promoted, however, is the restructuring of Russia’s export network and a stronger foothold in Asian and Middle Eastern markets. 

This fall, Russia opened a new export route into the United Arab Emirates via its first Kazakh CPC Blend crude deliveries from the Russian Black Sea port of Yuzhnaya Ozereyevka. 

📜 Chevron Ends Australian LNG Strike 

On Friday, Chevron and The Offshore Alliance agreed to end two weeks of union-led strikes. 

The dispute affected Chevron’s Gorgon and Wheatstone LNG projects, which collectively export over 5% of global LNG supplies. 

The mediating group, the Fair Work Commission, adjourned the dispute for four weeks while the opposing sides finalize terms.