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🛢️ Oil Notches Gains, US Inventories Fall

Oil markets are coming around to 2H23’s optimistic forecast, as Brent and WTI futures continued their fourth week of price gains on Friday.

Brent futures rose 1.8%, and WTI futures climbed 1.9% on the final day of the week.

Several updates this week supported those gains, including a report of declining inventories from the Energy Information Administration (EIA), Russia’s withdrawal from the UN-brokered safe sea corridor agreement, another oil and gas rig cut for US firms, and a mild stimulus for the Chinese economy.

According to Wednesday’s EIA weekly report, crude inventories fell by 708,000 barrels to 457.4 million barrels. For the week ending July 14th, supplies at the Cushing, Oklahoma hub declined by 2.9 million barrels.

The EIA’s tally of distillate inventories was up 14,000 barrels to 118 million barrels to end the week, approximately 21 million barrels (15%) below the 10-year seasonal average.

Gasoline stocks fell by 1.1 million barrels to 218 million barrels or 13 million barrels (5%) below the 10-year seasonal average.

US refineries operated at 94.3% of maximum capacity during the same period, or 2.2% above the 10-year average.

According to Baker Hughes Co’s Friday report, US oil and gas firms cut rigs for the 11th time in the past 12 weeks. US oil rigs declined by 7 to 530, and US gas rigs fell by 6 to 669. In the EIA’s monthly Drilling Productivity Report released this week, US shale oil and gas production is expected to fall in August – the first decline since December 2022.

After a Ukrainian strike on Russia’s bridge to Crimea, destabilizing conditions between Russia and Ukraine added to the mix. On Monday, Russia exited the UN-brokered safe sea corridor agreement that enabled grain exports from the region. Russia targeted Ukrainian ports, food export facilities, and ships this week.

On Friday, China announced plans to boost sales of vehicles and electronics as a lever for domestic consumer demand growth.

Quick Shots:

📉 Gazprom Loses LNG European Market Share to Novatek

Late last year, Europe enacted embargoes on Russian oil in retaliation for the invasion of Ukraine. Those embargoes don’t include LNG, and Russia’s role as a longstanding supplier of super-chilled gas has quietly expanded this year.

Historically, Russia’s state-operated Gazprom dominated exports to the EU, but last year’s Nord Stream pipeline explosions opened the door for a new Russian player – Novatek.

With the expansion of Novatek’s Yamal LNG facility in Siberia in 2017, the firm took advantage of Gazprom’s troubles, stealing roughly half of Gazprom’s European market share this year.

Novatek’s LNG and natural gas exports to Europe for the first half of this year are more than ~435,000 mmBTU (12.34 billion cubic meters).

Gazprom eeked out a slim margin above Novatek with ~487,000 mmBTU (13.8 bcm).

According to a Russia-based brokerage firm interviewed by Reuters, Gazprom’s market share is likely down 65%-75%.

🔥 Buyers Target Strategic Gas Reserves

Carrying on our LNG theme from above, Japan’s Industry Minister, Yasutoshi Nishimura, announced plans for an LNG reserve system on Tuesday.

Last year’s energy crisis priced out many Asian LNG buyers, forcing gen stacks to transition from gas to coal and oil. Japan’s Ministry of Economy, Trade, and Industry (METI) say the new LNG reserve system will provide security against unexpected situations like 2022, allowing METI to sell gas to utilities in similar supply disruptions.

METI plans to purchase and store at least one tanker of LNG per month from December to February.

Japan isn’t the only Asian government making plans for LNG disruptions. China, India, South Korea, and Taiwan are also expanding LNG storage capacity.

🌽 Policymakers Propose Discounted Biofuel Credits for Oil Refiners