New Zealand to Lift Ban on Offshore Oil Production & Colombia Chokes Israeli Power Generation
Espresso Briefing #3: Key oil market developments this week, short and sharp like your morning espresso.
Key Oil Market Stories
Colombia Suspends Coal Exports to Israel
Israel imports more than 50% of its coal from Colombia and uses much of it to feed its power plants. The most probable likelihood is that, outside of disruptions to short-term disruptions in supply chains for power plants, this will have a negligible effect on long-term energy fundamentals.
New Zealand to Lift Ban on Offshore Petroleum Exploration
New Zealand's government is moving forward with plans to lift the ban on offshore petroleum exploration, citing urgent energy security challenges due to rapidly declining natural gas reserves. Resources Minister Shane Jones emphasized the critical role of natural gas in the economy, particularly during periods of peak electricity demand and fluctuations in wind, solar, and hydropower generation.
The Luxon administration, which had pledged to resume offshore oil and gas exploration following last October's election, is also pushing to expedite the construction of renewable energy plants.
The ban on offshore oil and gas exploration was originally implemented in 2018 under then-leader Jacinda Ardern, though onshore projects have continued to be permitted.
Crude Markets
Prices fell last week after OPEC+ announced continued production restraint through 2024 but allowed for phaseouts and therefore increases in 2025.
Net crude stock draws generally expected from now through the summer.
Summer oil demand gain estimated at > 4 million b/d, driving refinery runs higher and pulling crude stocks lower.
OPEC+ Meeting:
OPEC+ to maintain voluntary supply cuts through Q3 2024; gradual unwinding through December 2025.
Current cuts total 3.8 million b/d, half by Russia and Saudi Arabia.
UAE given higher quota for 2025, allowing additional 300,000 b/d production.
Refined Product Markets
Gasoline Cracks
Easing but still healthy in the Atlantic Basin; weak in Asia.
Expected to recover in the West due to elevated octane prices and low stocks.
Softer in Singapore due to higher supplies and lower octane costs.
Diesel Cracks
Edged down in Europe but near historical levels; weaker in Asia.
HSFO Cracks
Rallying on summer demand in the Middle East and Chinese feedstock demand.
Strong structure expected to stay firm in the near-term.
Refinery Margins
Dropped recently in the Atlantic Basin but remain healthy in the US and Europe.
Near breakeven or below in Singapore for some grades/refinery configurations.
Asian refining margins persisting weaker than last year.
Gasoline
Healthy cracks in the West, supported by low stocks in ARA and US.
VGO prices eased but still high; FCC margins recovering but below breakeven.
High USG octane values supporting cracks; expected decline in winter.
Softer Singapore cracks due to lower octane costs and high inventories.
High Rhine water levels disrupting product loadings, temporarily supporting ARA gasoline prices.
Nigeria refined product exports jumped; no current impact from nationwide labor strike.
Indian monsoon season causing downward pressure on Asian cracks.
Diesel
Healthy cracks in the Atlantic Basin; structure remains weak but expected to improve mid-summer.
High Rhine River levels could cause ARA stock builds, weighing on diesel prices.
Russian exports steady but lower than Dec-Feb levels; high volumes in floating storage.
Fuel Oil
HSFO cracks rallying on seasonal demand and Chinese buying interest.
Middle East switching to net importer; net imports expected to climb.
Structure in HSFO markets strong, expected to stay healthy.
Russian HSFO exports steady but low historically.
VLSFO cracks edged higher; Hi-5 spreads narrowing.
Refinery Margins and Operations
Healthy margins in US and Europe expected to stay strong through August.
Margins in Asia near breakeven; persisting weakness may lead to run cuts.
Global outages declining as refineries conclude turnarounds.
Major ongoing maintenance in Western Europe, US, Africa, and Russia.
Russia sabotages Ukrainian power grid, leading to blackouts across the country. Ukrainian missiles retaliate and hit Russian oil terminals; nearby refineries unaffected but some still offline due to previous attacks.