It looked like a typical oil option expiration fade play in the oil market before headlines came out suggesting that this might not be your typical options expiration. Oil was down on reports that two of three Libyan fields that were shut in due to protests have resumed output. Then weak data out of China as their gross domestic product (GDP) grew 6.3% year on year in the second quarter, compared with analyst forecasts of 7.3%. Then a headline that caused a huge oil price spike was a Reuters report quoting the ministry of energy that said that Saudi Arabia will extend its voluntary cut until the end of December 2024. Yet they retracted that headline saying it was a repeat of the headline that had previously been released.
Wheat spiked on a report that Russia said that:
“The Initiative on the Safe Transportation of Grain and Foodstuffs from Ukrainian ports, also called the Black Sea Grain Initiative, the agreement among Russia, Ukraine, Turkey and the United Nations (UN) during the 2022 Russian invasion of Ukraine has expired."
Reuters said that:
“Russia has formally notified Ukraine, via the Russian embassy in Minsk, that it was suspending its participation in the Black Sea grain deal. Kremlin spokesman Dmitry Peskov told reporters on Monday that the Black Sea agreements ceased to be valid today...Unfortunately, the part of these Black Sea agreements concerning Russia has not been implemented so far, so its effect is terminated.”
The unrest due to the ending of this deal could filter down to the oil complex as it could impact all grain prices and biofuel. It also adds risk premium to oil and grain transportation. Russia does say it will return to the grain deal once its conditions are met. Yet Russian oil exports from western ports are set to fall according to reports.
This comes as we are facing a world in oil where demand is rising, but supplies are falling. That is the take from JODI at the International Energy Forum. Jodi reports that “Oil demand in JODI-reporting countries rose by more than 3 mb/d month-on-month in May and approached March’s record, while crude oil production fell, according to the latest data issued by the Joint Organizations Data Initiative. The jump in oil demand was driven by China, India, Saudi Arabia, and the US. China’s total product demand increased by 1.7 mb/d month-on-month to 17.37 mb/d – the second-highest level ever reported in JODI."
Crude oil production in JODI reporting countries fell by 0.8 mb/d in May, driven by lower production in Saudi Arabia, Canada, and the US. Crude inventories in JODI countries fell by 10 mb and stood 324 mb below the five-year average. Meanwhile, product inventories rose by 32 mb and stood 25 mb below the five-year average. Saudi Crude inventories drew by 1.2m barrels and product inventories rose by 0.9m barrels, according to IEF citing Jodi data. Saudi Crude production fell by 502k bpd to 9.96m bpd in May. Saudi Crude exports fell by 388k bpd to 6.93m bpd in May.
Notably, this month’s update did not include April or May data for Russia, but March oil data for the country was included for the first time. Russian crude production fell by 49 kb/d from February to 10.18 mb/d in March and stood flat from year-ago levels.
Last Week OPEC predicted that world oil consumption would increase by 2.2 million barrels a day in 2024 to 104.3 million a day. OPEC+ alliance is formally due to hold a monitoring meeting on August 3
While the Chinese demand this morning was disappointing the bottom line is that China continues to import near-record amounts of oil. We continue to see the supplies tightening and today we might get some option expiration madness; the bottom line is use dips in the market to put on hedges.
Jodi said that global natural gas demand declined seasonally in May by 10.4 bcm, according to the data. EU+UK natural gas demand declined by 7.4 bcm and was ~17 percent below seasonal average levels. The region’s inventories built by 9.2 bcm in May (slightly less than the seasonal average of 11 bcm) and stood nearly 70 percent full at the end of the month. The JODI oil and gas databases were updated on Monday, with 51 countries reporting oil data for May and 53 countries reporting natural gas data.