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Oil Climbs Another 3% as OPEC Paws Away Any Meaningful Output Hikes

Commodities May 16, 2022 03:24PM ET
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© Reuters.

By Barani Krishnan

Investing.com -- Shut out the noise, stick to the script and let consumers’ problems be consumers’ problems, not ours. OPEC+’s stance worked well in pushing crude prices up for a fourth day in a row, adding some 3% to Monday’s session after an initial tumble in Asian trading as market participants reacted to poor economic data out of top oil importer China.

London-traded Brent settled at $114.24 a. barrel, up $2.90, or 2.4%. It sank to $109 earlier in the day.

New York-traded WTI settled at $114.20, up $3.71, or 3.4%. Earlier in the session, WTI fell to as low as $106.28.

The turnaround in crude prices came after Saudi Arabia’s Energy Minister Abdulaziz bin Salman said a dearth of refining capacity in the United States and elsewhere meant that gasoline and other oil products would remain expensive, even if exporters pumped more crude. 

US fuel prices have hit record highs since last week, with gasoline at above $4.50 and diesel at around $6 at some pumps. Aside from a deficit in refining capacity, demand for fuels anticipated ahead of the peak summer season for travel is driving energy prices to hitherto unseen levels. 

Abdulaziz’s remarks form a now familiar OPEC+ refrain that there are “physical impediments that no producer can solve.” 

The 23-state OPEC+, which comprises the original 13 nations led by the Riyadh-led Organization of the Petroleum Exporting Countries with another 10 countries steered by Russia, have stuck to monthly increases of just above 430,000 barrels per day. That falls clearly short of demand that is at least 3 million barrels higher, as a direct consequence of the West’s sanctions on Russia that have de-legitimized an equal number of barrels that used to be on the market.

The United States is experiencing a severe squeeze in the supply of gasoline, and particularly diesel, from the closure and downsizing of several refineries during the coronavirus pandemic. Refineries that have stayed in the business are now providing only what they can — or, more accurately, what they desire — without putting any money into expanding existing capacity or acquiring the idled plants that can be reopened to provide some measurable relief to consumers. One motivation for the refineries to do this: record profits from the current situation that may be diluted in an expansion. The other is the long turn-around time for any new refinery to deliver a profit.

Bloomberg estimates that more than 1.0 million barrels per day of U.S. oil refining capacity — or about 5% overall — has shut since the Covid-19 outbreak initially decimated demand for oil in 2020. Outside of the United States, capacity has shrunk by 2.13 million additional barrels a day, energy consultancy Turner, Mason & Co says. The bottom line: With no expansion plans on the horizon, the squeeze is only going to worsen.

“There is no refining capacity commensurate with the current demand and the expectation of the demand in the summer,” Abdulaziz said Monday in comments carried by Bloomberg from an energy conference in Bahrain.

His remarks were echoed by Bahrain’s Oil Minister Sheikh Mohammed Bin Khalifa Bin Ahmed. 

“There’s no new capacity coming,” Sheikh Mohammed said at the same event. “Even if you produce more crude, there isn’t demand for it, there aren’t any more refineries.”

Oil Climbs Another 3% as OPEC Paws Away Any Meaningful Output Hikes
 

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Comments (15)
Adamo Nals
Adamo Nals May 16, 2022 6:54PM ET
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I forgot to add in you have an administration at war with fossil fuels. Yes at war with fossil fuels. It’s a perfect storm of a supercycle. Energy stocks were dead money for 15 years. A lot of younger folks don’t know this. But you want to be buying energy energy and more energy. Commodities materials chemical companies and insurance carriers. But most importantly energy as 50% of your portfolio at least
Adamo Nals
Adamo Nals May 16, 2022 6:52PM ET
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For all you young millennials under 40. I’ve been through this. But this time it’s a super cycle you’ll see once every hundred years. $150-$200 a barrel is correct. I have been in all energy stock since December. And they will continue to go higher because they are so cheap and have incredible fundamentals. And all of them are 50 to 500% off they’re all time highs still. S&P $220 a share times 15 X equals 3300. It’s quite simple. Long way to gp before the great reprocing is finished after a failed I repeat failed federal reserve experiment of free money and 0% rates for the better half of two decades. Oh and a little thing called 9 trillion on the balance sheet. See you at 3000. We always overshoot. SPY puts an energy energy and more energy. SGT, VTNR, AMPY CRK. Best inbreed in midcap energy. All of them are severely undervalued. Good luck
CN KW
CN KW May 16, 2022 5:56PM ET
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well, I can say a halt is imminent to return to low oil price. that's the only way if all are so adamant with EU embargo..EU will be first to go into recession follow by the rest. chaos coming..
Alan Rice
Alan Rice May 16, 2022 5:44PM ET
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It is clear that as Crude prices climb to more realistic levels (150-200/bbl) Earth is (already) becoming a better place to live.
Alan Rice
Alan Rice May 16, 2022 5:40PM ET
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Crude Target: $200 /2024.
John Lakran
John Lakran May 16, 2022 5:40PM ET
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Did you not read the article? They won't produce anymore oil as there will not be any new demand for it as refining production is capped. Oil will therefore remain as is and gas/diesel will continue to make historic highs. Biden's only accomplishment record fuel prices
Abdalluh Frhan
Abdalluh Frhan May 16, 2022 5:03PM ET
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We in Yemen want money and safety
Abdalluh Frhan
Abdalluh Frhan May 16, 2022 5:00PM ET
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hay
trevor hron
trevor hron May 16, 2022 4:29PM ET
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Thanks for the article. The refineries situation is going to get real messy before it starts getting a build up in Capex. So no relief in sight for the time being. Demand should pick back up and the Oil and Gas sector wont be ready. Lots of reasons demand ahowuld start going up. The biggest of course is the China lockdown. If they can get free of that the demand will go through the roof. And where is all this extra capacity coming from???? Its not. At least not for several months.
Barani Krishnan
Barani Krishnan May 16, 2022 4:29PM ET
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Totally, Trevor. It is what it is, and we have to acknowledge it.
jason xx
jason xx May 16, 2022 4:18PM ET
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Goog let's focus on EV'S and natural gas to remove this oil mafia from power
Barani Krishnan
Barani Krishnan May 16, 2022 4:18PM ET
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I'll second that anytime, Jason.
Faux News
Faux News May 16, 2022 4:07PM ET
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Biden should remove all military tech support and spare parts from Saudi Arabia until they increase oil production.
Barani Krishnan
Barani Krishnan May 16, 2022 4:07PM ET
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There are several ways one can think of. The only problem is that MbS has an ego as big (or probably bigger) than Putin's.
 
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