Vol. 26, No.43 Week of October 24, 2021
Providing coverage of Alaska and northern Canada's oil and gas industry

Hello to upper $80s

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Tight market, draws on inventories drive oil prices to seven-year highs

Steve Sutherlin

Petroleum News

Alaska North Slope crude closed at $86.78 per barrel Oct. 20, a gain of $1.07, while West Texas Intermediate rose 91 cents to close at $83.87. Brent closed at $85.82, a gain of 74 cents.

The gains took prices to seven-year highs. For ANS and Brent, it was the second consecutive close above $85.

Bullishly, U.S. oil demand continued to show strength despite prices above $80.

U.S. commercial crude oil inventories fell by 431,000 barrels for the week ended Oct. 15, the U.S. Energy Information Administration said on Oct. 20. Analysts that answered a Reuters poll had expected a build of 1.9 million barrels. At 426.5 million barrels, U.S. crude oil inventories stood at about 6% below the five-year average for this time of year.

Prices have been bolstered by robust draws on global oil inventories, averaging 1.9 million barrels per day during the first three quarters of 2021, according to the EIA.

Total motor gasoline inventories decreased by 5.4 million barrels for the period to 217.7 million barrels, the lowest level since November, 3% below the five-year average for this time of year, the EIA said.

Hot early trading Oct. 20 was cooled by an announcement by the Chinese government that it wants to combat record high coal prices by ensuring that coal mines operate at full capacity to ease a power shortage, according to an Al Jazeera report. Oil markets have been supported by a global coal and natural gas shortage, which has driven a switch to diesel and fuel oil for power generation.

“Ultimately, China’s coal output needs to increase to remedy its energy woes,” Vivek Dhar, Commonwealth Bank commodities analyst said in a note.

China’s National Development and Reform Commission said it will aim to achieve at least 12 million metric tons per day of output, up more than 1.6 million metric tons from late September.

Oil markets recovered from the Chinese coal announcement later in the trading day.

Markets remain tight, as evidenced by WTI futures contracts in steep backwardation, with later-dated contracts at lower prices than the current contract, according to a Reuters report.

Later months usually trade at a higher price, reflecting the cost of storage. Backwardation prods companies to sell oil immediately rather than store it.

Brent and WTI drifted lower in early trading Oct. 21 as Petroleum News went to press.

Japan COVID levels in freefall

The delta variant seems to have rapidly lost its grip on Japan. For reasons unknown, the country has staged a dramatic turnaround in its COVID-19 cases since highs set in August.

Tokyo reported only 40 cases Oct. 17, the lowest level all year, while Japan reported 429 cases nationwide.

The case counts are a far cry from a spike that followed the Tokyo Olympic Games.

On Aug. 13, Tokyo reported a record 5,773 new cases, according to a report in The Guardian. Nationwide the total exceeded 25,000.

Hospitals were maxed out, and the shortage of beds forced thousands of patients to recuperate or die at home.

Experts contend that Japan’s COVID vaccination levels - 70% of its 126 million residents - explain the improvements in case levels, aided by widespread wearing of masks.

If other countries follow the Japanese pattern, the resulting return of mobility would accelerate demand for motor fuels and return jet fuel usage to pre-pandemic levels.

Commuters have returned to the country’s railways as many companies no longer allow employees to work from home. Leisure travel in the country is recovering.

Bars and restaurants are again serving alcohol, although they will be encouraged to close early until the end of October.

Experts have warned that cases could begin to rise again with colder weather, especially as people mingle in poorly ventilated bars and restaurants during the Bon enkai office party season.

“The end of the emergency doesn’t mean we are 100% free,” Shigeru Omi, Japan chief medical adviser said. “The government should send a clear message to the people that we can only relax gradually.”

World leaders must avoid politicizing energy

A discussion group at Russian Energy Week in Moscow Oct. 15 warned of the dangers of politicizing energy development. The energy sector needs to become cleaner in a way that does not adversely affect global energy security, it concluded.

“People are not only expecting improvements in terms of the climate and environment, they also expect their homes to be heated, and to have light,” said Alexander Novak, deputy prime minister of the Russian Federation.

Politicians must collaborate with professionals to develop a balanced approach to energy, he said.

“It is not about making a choice between energy security and the environment - the two issues are not mutually exclusive,” said Prince Abdulaziz bin Salman Al Saud, Saudi Arabia minister of energy.

“We must also not forget about the issue of energy poverty,” he said, adding that billions of people suffer from energy poverty and lack rudimentary access to energy resources.

The group also concluded that a diversity of energy sources is needed.

“We must approach this issue in a rational way and use all forms of resources at our disposal,” said Parviz Shahbazov, minister of energy of the Republic of Azerbaijan.

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