Vol. 28, No.23 Week of June 04, 2023
Providing coverage of Alaska and northern Canada's oil and gas industry

Russians are coming!

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Russia betrays OPEC+ production cut agreement and raises crude shipments

Steve Sutherlin

Petroleum News

Just as Alaska North Slope crude was mounting a recovery from near $70 per barrel and closing in on $80, Russia has been caught surreptitiously flooding the market with cheap seaborne crude, in direct violation of its agreements with the Organization of the Petroleum Exporting Countries and its allied exporting nations - of which Russia is part.

Russian crude sales to international markets are edging lower, but the 500,000-barrel-per-day output cuts Russia agreed to in mid-May have not materialized, Bloomberg revealed in a May 30 report. In fact, Russian shipments are 270,000 bpd higher than in February, the baseline month for the promised cut.

Russian oil shipments remain some 1.4 million bpd higher than levels at the end of 2022, despite slipping for the first time in six weeks during the period ending May 28, to settle at 3.64 million bpd.

Oil prices cratered on the news. ANS nosedived $3.13 May 30 to close at $73.34, while West Texas Intermediate plunged $3.21 to close at $69.46 and Brent plummeted $3.41 to close at $73.54.

The carnage continued May 31, taking ANS down $1.55 to close at $71.79, as WTI slumped $1.37 to close at $68.09 and Brent shed 88 cents to close at $72.66.

Despite oil prices near 2023 lows, investors are betting OPEC+ won- t respond by cutting production when it meets June 4, Barron- s reported May 31, adding, "If investors are right, oil prices - and stocks - could be in a rut all summer."

Since October, OPEC+ slashed production by 3.5 million bpd, a significant amount given typical levels near 100 million bpd of global consumption.

Since the October cuts were announced, Brent tumbled from $83 to $72.78 on May 31, less than 1% above its 2023 lows.

The weak price performance to end the month of May was exacerbated by a surprise inventory build. U.S. commercial crude oil inventories for the week ending May 26 leapt 5.202 million barrels, American Petroleum Institute data showed May 31, while analysts had expected a 1.22-million-barrel drop, according to Oil

Inventory in the Strategic Petroleum Reserve fell, however, for the ninth week in a row, down 2.6 million barrels for the week ending May 26. The SPR now contains 355.4 million barrels - the lowest level since September 1983.

U.S. Energy Information Administration data was not available May 31 due to Memorial Day market and federal office closures May 29.

Oil was further pressured by moribund Chinese demand recovery data, and a rising U.S. dollar, which causes oil to be more expensive for buyers that must convert local currency to dollars to purchase oil.

On May 26, markets edged higher as the Biden Administration and congressional Republicans announced an agreement to lift the debt ceiling to allow the U.S. to meet its obligations, pending approval by the House of Representatives and the Senate. ANS rose 80 cents to close at $76.47, as WTI rose 84 cents to close at $72.67, and Brent rose 69 cents to close at $76.95.

Those gains came on the heels of a sharp decline May 25 as traders fretted over the lack of a debt ceiling deal. ANS slumped $2.15 on the day to close at $75.67, while WTI dropped $2.51 to close at $71.83 and Brent gave up $2.10 to close at $76.26.

From Wednesday to Wednesday, ANS declined $6.03 from its May 24 close of $77.82 to close at $71.79 May 31.

On May 31 Brent widened its price premium over ANS to 87 cents. Refineries on the West Coast - where ANS is sold - can- t feast directly on the cheap Russian oil due to a federal ban on importing Russian crude. Asian buyers can. China and India are eagerly buying excess Russian crude which otherwise might have gone to Europe, limiting their ability to support West Coast prices by sopping up excess Pacific cargoes of oil.

Oil caught a bit of air under its wings taking WTI and Brent slightly higher in Asian trading early June 1 as Petroleum News went to press. The debt ceiling bill passed the House by a commanding majority. The bill must pass in the Senate before President Biden can sign it into law. If that is not accomplished by June 5, the resulting turmoil could rattle international markets.

Air travel gets a lift

Americans took to the skies Memorial Day weekend: air travel surpassed pre-pandemic levels.

The Transportation Security Administration screened 9.79 million passengers from Friday through Monday, up from the holiday weekend in 2019, CNBC reported.

More than 2.7 million people passed through TSA checkpoints over the weekend, setting a post-pandemic record, the TSA said.

A strong start to the summer travel season portends strong consumer demand for vacations and other trips, despite vaulted interest rates, food inflation and housing cost increases, CNBC said.

In 2022, dicey weather, staffing shortages and system snafus caused an increase in flight disruptions over the peak period.

Good flying weather over the 2023 holiday helped to get passengers into the sky; only 16% of flights arrived late from Friday through Monday, according to FlightAware. Delays were fewer compared to the same weekend last year.

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