Had the oil market already priced Iran’s attack? Around 2 a.m. GMT, news broke that three Israeli drones over the Iranian city of Isfahan had been shot down. This marks a decisive moment since Israel was expected to retaliate after Iran’s recent attack. However, markets appeared not to have priced in Israel’s counteroffensive. After the weekend attacks, many market participants were anticipating upside pressure in the Monday open, but the session was uneventful and the rest of the week had so far seen losses of around $3.5 per barrel – bringing Brent price back to 24 March levels of around $86.5 per barrel as of the Thursday session. After last night’s 2 a.m. GMT drone attack at Isfahan, ICE Brent front-month futures jumped $3 to $90 per barrel, before quickly falling back to the same level as the Thursday close. How do we reconcile the escalating risk with this week’s bearish price movement? Markets tend to factor in unaccounted risk as price action – that is, markets react to new information, so it matters whether or not the event was expected. Markets had likely already accounted for the possibility of the event. Brent rose to $92 per barrel last week, while front-month futures closed at $90.5 on Friday. Rystad Energy calculates that the “fair value” of Brent for April, based on fundamentals, is around $83 per barrel. If, the markets had already accounted for the extraordinary event and Brent at $92 per barrel as of last week implied a $5-7 deviation from fundamental value, then this week’s current reversion to the fundamental value should be a surprise. In terms of the risk of disruption to Iranian exports and production, on average 1 million bpd of Iranian crude goes to China and competes in the medium-sour basket against grades that offer similar product yields, with the likes of Basrah medium (Iraq), Arab Medium (Saudi Arabia), Oman Blend (Oman), and Upper Zakum (UAE). China’s total imports of medium-sour grades ranged between 6.5 million and 7.5 million bpd in the past year, and if Iranian production is disrupted, there are viable alternatives among Middle East producers with spare capacity. China accumulated substantial amounts of crude in commercial storage during the second half of 2023. How likely it is that Iran’s production infrastructure is effectively affected? Around 90% of Iran’s exports leave from the Kharg Island oil terminal in the Persian Gulf, which is fed by a network of pipelines across the country. There is one oil refinery operated by NIOC in Isfahan, the city that received the first retaliatory attacks by Israel this morning. The distribution of wells is also key. More details about Iran's oil fundamentals and overall infraestructure risk in the full commentary. Our clients, have full access in the link below: https://lnkd.in/e2yT4AUs Mukesh Sahdev Janiv Shah Kartik Arvind Allyson Agosta Jorge León Rohan Goindi Aditya Rath Susan Bell Amir Zaman Billy Snaith
Patricio Valdivieso, Ph.D.’s Post
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Thanks to Robert Harvey at Reuters for the interesting take on US crude flows to Europe. https://lnkd.in/eiipWurU Indeed the interplay of light sweet grades in the Atlantic basin is of high interest right now, reduced WTI-Brent differentials and increased availability of Bonny light explain the strong reduction of US exports to Europe in June. However, other light sweet crude producers, such as Norway, UK and Libya, also contirbuted to the reshuffle. One important detail is that total European crude imports are looking steady in June (flat at 9.7 million bpd). So, it is likely a supply side reaction to a change in differentials, combined with bearish fundamentals due to build-up in product inventories and oversupply of light sweet crudes. We do expect a mild recovery for July, were European imports from the US in July should experience a slight recovery to somewhere around 1.6 million bpd. Mukesh Sahdev, Janiv Shah, Jorge León, Claudio Galimberti, Elliot Busby, Avani Bhatnagar, Aditya Rath, Shenglan Niu
Exports of U.S. crudes to Europe sunk to a two-year low in June, as weaker economics for transatlantic shipments saw European refiners prefer local and West African grades. With US WTI Midland having been added to the Dated Brent oil benchmark last year, fluctuating export volumes can have a more significant impact on global oil prices. By Georgina McCartney and me, with data and contributions from Kpler, Adi Imsirovic, Gus Vasquez, Patricio Valdivieso, Ph.D. , Richard Price and Neil Crosby https://lnkd.in/ejP77R6e
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Thank you to Reuters for featuring our latest Oil Market Inisght about the impact of OPEC+ latest guidance on global oil supply growth for this year and the risks to 2025 production. https://lnkd.in/eBkUbKxy Mukesh Sahdev Janiv Shah Mariano T A Sunaina Arya Claudio Galimberti Laura Rodríguez Skaug
Oil supply growth set to taper in 2024, Rystad Energy says
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Grateful for the opportunity to participate in today's dynamic roundtable discussion in Dubai with Gulf Intelligence and such distinguished leaders in the regional and global trading sector. A heartfelt thank you to everyone for sharing their perspectives on the oil markets and the UAE's role as an emerging global trading hub. Looking forward to future exchanges with the thought leaders of the global trading community. Claudio Galimberti Mukesh Sahdev Sunaina Arya Valerie Panopio Ed Tockman
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It is always a pleasure collaborating with Reuters. At Rystad, we have been calling the heavy crude shortage for quite some time now. Sanctions to Venezuela, increased internal refining capacity for heavier crudes (coker units, and new refining capacity), and the TMX pipeline expansion, all had been visible since 1Q24. Interestingly, things might change in the upcoming weeks, as latest intel points to difficulties in Mexico's refining industry to effectively process increased volumes of heavy crude and special licenses to operators other than Chevron in Venezuela, might be possible. BALANCING ACT High-density, higher-sulphur crudes are harder to refine and therefore usually cheaper than lighter oil. The higher prices are a particular headache for refiners who invested in the costly upgrading units that allow them to process the heaviest grades. "The lack of heavy sour crudes goes directly against refinery profitability and it is a waste of capex for complex refineries," said Rystad Energy's vice president of oil market analysis Patricio Valdivieso. https://lnkd.in/exMkZG7Z Mukesh Sahdev, Janiv Shah, Jorge León, Laura Rodríguez Skaug, Kartik Arvind, Natalie Grover
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Last Friday we published our latest Crude Supply Revisions Report together with our upstream experts Aditya Rath, Rimal Bhat and Flávio Ferreira Menten. The main revisions were explained by the latest OPEC+ decision to extend the 2.2 million barrels per day (bpd) voluntary cuts until at least the end of this year’s second quarter, tightening the oil market in the immediate future. Also, the US saw a strong recovery in crude production following January 2024 weather-driven production outages. Similarly, new data suggests Latin America’s crude output growth rate to be less bullish than previously anticipated. Some signals to keep in mind: *OPEC+ extension of voluntary cuts prompted a downwards revision of 1.26 million bpd on average to Middle East crude output in the second quarter, following the announcement, OPEC+ crude production is now anticipated to average 34.6 million bpd in the second quarter of this year before increasing to around 36.3 million bpd in the second half of the year, assuming the cuts will not be extended into the third quarter. The voluntary cut extension keeps the market in a crude deficit of 900,000 bpd. *Russia has announced voluntary cuts of their own to crude production during the same period as the OPEC+ cut extension. This has led Rystad Energy to revise down Russia’s crude numbers in the second quarter by 364,000 bpd on average. Possible downside risks have emerged recently to Russian crude output, with Ukraine targeting crude processing infrastructure in Russia to cut a vital source of revenue. *US crude and condensate output has been revised up by almost 120,000 bpd to 13.15 million bpd in the first quarter of 2024. The revisions are driven by a greater than expected recovery rate following production disruptions due to extreme weather in December 2023 and January 2024 and the US Gulf of Mexico (GoM) delivering higher than expected production. *Crude and condensate output from Brazil has been revised down by 75,000 bpd in the first quarter of this year. This is primarily due less than expected output reported in January (-163,000 bpd). The revisions are driven by mature assets in offshore fields. The most prominent revised assets in this year’s first quarter are the floating production, storage and offloading (FPSO) vessels P-67 (-26,000 bpd), P-69 (-38,000 bpd), Cidade de Marica (-17,000 bpd) and Cidade de Saquarema (+5,500 bpd). All these assets operate at the Tupi project offshore Brazil. *Guyana’s crude output in the first quarter of this year has been revised up from 567,000 bpd to 605,000 bpd. This was due to t rapid ramp-up of the Prosperity FPSO operating on the Payara-Pacora oilfields. The FPSO achieved its nameplate capacity of 220,000 bpd in February 2024, a month ahead of schedule. Our clients can read the full insight with multiple signals by Aditya Rath, Rimal Bhat, Flávio Ferreira Menten and Patricio Valdivieso, Ph.D. here: https://lnkd.in/evY5Zaap
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We are hiring for a senior supply analyst for our team. Want to join the fast-growing Oil Markets team at Rystad? This job may be for you, if you have an Upstream background Please send me a message if you are interested and apply in the link below. Mukesh Sahdev Janiv Shah
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Senior Process specialized at LNG plant
2moThanks for analysis ...what is the potential damage to supplies from China in the event of an Israeli attack on Iran.....Russia can ensure sufficient quantity. what is startigy would make usa via oil of venezuela sotarage. Its self-sufficiency