The Commodities Feed: China omicron worried | Break
Brent finished last week up around 5% on WoW due to growing supply issues. However, we started this week on a weaker basis. Brent and WTI are trading lower in the morning session in Asia. The developments of Covid in China are not helping sentiment. Tianjin has started citywide testing after two local cases of Omicron were detected. As we see other countries adapt to live with Covid, China clearly continues to pursue its zero covid policy. This is a risk to oil demand since China is the world’s largest importer of crude oil. We are also approaching the Chinese New Year, a time when there is normally a lot of domestic travel, and therefore any domestic restrictions will weigh on oil consumption.
However, for now, the market is still primarily focused on supply dynamics. Even with the offer, however, we’re starting to see improvement. In Libya, production would have returned to 900 Mb / d after maintenance work on the pipelines. The maintenance work had led to a drop in production of 200 Mbbls / d. While in Kazakhstan it is clear that there is still a lot of uncertainty and therefore will remain a risk for the supply. That said, the Tengiz oil field, which initially adjusted production due to logistical issues, is gradually bringing production back to normal levels.
The supply problem that will not go away anytime soon is OPEC’s reserve capacity. There are only a handful of members who have the capacity to increase their production, while others fail to meet their agreed production levels due to disruption and lack of investment. This is evident when looking at OPEC’s production levels for December, where OPEC members under the deal increased their production by 150 Mbbls / d, against a possible increase in production. of 250 Mbbls / d.
The European natural gas market came under pressure on Friday with an TTF down around 8.6%. This follows news that the Groningen gas field in the Netherlands could increase production to 7.6 billion cubic meters in the current gas year, from an earlier estimate of 3.9 billion meters cubes. This is due to higher demand as well as a delay in the start-up of a new nitrogen plant in Zuidbroek.