ANS rises into $70s

Alaska benchmark tops $70, but drops back as tariffs up demand fears

Steve Sutherlin

Petroleum News

Alaska North Slope crude made a foray up into the $70s Aug. 25, gaining 96 cents to close at $70.62 per barrel, as West Texas Intermediate surged $1.14 to close at $64.70 and Brent jumped $1.07 to close at $68.80.

Markets were buoyed as traders considered supply interruptions from stepped up Ukrainian attacks on Russian oil infrastructure. Ukraine drone attacks struck the Novokuibyshevsk, Syzran, Ryazan and Volgograd refineries in Russia, leading to fuel shortages.

The very next day, however, a Homeland Security notification confirmed the United States would impose an additional 25% tariff on all Indian exports for continuing to buy Russian oil. The fresh duties took the total levy on Indian-origin goods to 50%, one of the highest among key U.S. trading partners, rekindling fears of tariff-induced demand destruction.

ANS returned to the high $60s range where it had been bound for three weeks, plunging $1.42 Aug. 26 to close at $69.20, while WTI plunged $1.55 to close at $63.25 and Brent plunged $1.58 to close at $67.22.

On Aug. 27, a stronger than expected draw on U.S. crude inventories helped oil futures to recover some of the prior day's swoon. WTI gained 90 cents on the day to close at $64.15 and Brent rose 83 cents to close at $68.05.

U.S. commercial crude oil inventories for the week ending Aug. 22 dropped 2.4 million barrels from the previous week to 418.3 million barrels -- 6% below the five-year average for the time of year, the U.S. Energy Information Administration said in its weekly petroleum report.

Analysts answering a Wall Street Journal poll had predicted crude stockpiles would fall by 1.9 million barrels.

Total motor gasoline inventories fell by 1.2 million barrels for the week to 222.3 million barrels -- at the five-year average for the season, the EIA said. Distillate fuel inventories dropped by 1.8 million barrels for the period to 114.2 million barrels -- 15% below the five-year average for the time of year.

Gasoline stocks were forecast in the Wall Street Journal poll to have fallen by 1.7 million barrels and distillate fuel stocks were expected to notch a 900,000-barrel build.

Boosted U.S. tariffs on Indian goods went into effect Aug. 27, as India stepped up purchases of Russian crude.

"To boil it down to simple economics, wider discounts on Ural grades relative to higher Middle East grades have outweighed tariff pressures and those discounts have reinvigorated the Indian buying interest," Ben Hoff of Societe Generale said in a note, Barron's reported.

Hoff said China stepped in to buy Russian oil when Indian demand dropped for several weeks, adding, "The tariff uncertainty has, from an oil perspective, done absolutely nothing to change global balances, but has simply shifted trade flows."

ANS added 19 cents Aug. 22 to close at $69.65, WTI added 14 cents to close at $63.66 and Brent edged up 6 cents to close at $67.63.

On Aug. 21, ANS gained 68 cents to close at $69.46, WTI added 31 cents to close at $63.52 and Brent gained 83 cents to close at $67.67.

ANS jumped 95 cents Aug. 20 to close at $68.79, as WTI gained 86 cents to close at $63.21 and Brent leapt $1.05 to close at $66.84.

ANS gained $1.36 over the trading week from its close of $67.84 Aug. 19, to its close of $69.20 Aug. 26.

On Aug. 26, ANS closed at a premium of $5.95 over WTI and at a premium of $1.98 over Brent.

Refiners could drive green hydrogen demand

European Union regulations are forcing the EU's refiners to decarbonize faster than anywhere else.

"Electrolytic green hydrogen's ability to deliver almost carbon-free hydrogen through renewables means that EU regulations -- and subsidies -- broadly favor it over blue hydrogen, which uses carbon capture and storage to cut emissions from fossil-fuel feedstocks," WoodMac said. "Consequently, European refiners are set to become significant producers or buyers of green hydrogen, initially to decarbonize the refining sector and its derivatives as fuel for marine and aviation."

Other EU policies aim to incentivize the decarbonization of the maritime and aviation sectors opening a path for future demand growth, it said.

Current policy can get the ball rolling, but the cost of green hydrogen production must continue to fall, and additional regulation is needed to scale up the green hydrogen industry, WoodMac said.

Globally, refining, ammonia and methanol consume 100 million tonnes per year of conventional, carbon-intensive hydrogen -- equivalent to 98% of all hydrogen demand, WoodMac said. Hydrogen is key in the chemical conversion and upgrade of crude oil into transport fuels and petrochemical feedstocks, and it is used to remove contaminants for sulfur-free road fuels.

Hydrogen is a byproduct of naphtha to gasoline conversion, but produced volumes are insufficient to meet the refineries' needs, making hydrogen production from steam methane reforming essential, WoodMac said. Traditionally, the process involves energy-intensive conversion of natural gas, releasing significant CO2.

European refiners under the EU Emissions Trading Scheme are charged for the CO2 they emit beyond a free allowance, which will gradually be eliminated over time, WoodMac said, adding, "Producing green hydrogen on site using renewable-powered electrolysis would eliminate many of those CO2 emissions and, hence, emission-related carbon costs."