Oil and global market update

Brent Prices (82.40 $/bbl) were poised for a third weekly gain as the market tightened due to supply constraints across OPEC+ members following civil unrest. Futures in New York rose to trade near $80 a barrel after climbing almost 6% over the past four sessions. Here are other insights from Friday’s Goldman Sach’s daily oil market update.

European natural gas jumped again Friday morning as Russia continued to keep a lid on flows to the continent. Prices have surged more than 40% this week, after easing at the end of 2021, with Russian shipments via key pipelines sinking to the lowest for this time of year since at least 2015. The market rally — which follows a more than threefold annual gain — is maintaining intense pressure on consumers and forcing industries across the region to slash output. The Yamal-Europe gas link, which usually sends the fuel to Germany via Poland, is flowing in the opposite direction for an 18th consecutive day, forcing consumers to rely on already-strained inventories. Russian flows via a key route transiting Ukraine also remain low. Benchmark European gas futures rose as much as 6.7% this morning to 103 euros a megawatt-hour, and traded at 100 euros as of 8:34 a.m. in Amsterdam.

Crude Oil

** U.S. – A deep-freeze in Canada and Northern U.S. is disrupting oil flows, causing a surge in crude prices just as American stockpiles are declining. With temperatures from North Dakota to Northern Alberta below zero Fahrenheit (-18 Celsius), TC Energy Corp.’s Keystone pipeline was shut on Tuesday before resuming later the next day. In North Dakota’s Bakken shale, production has started to succumb to the freeze, sending local crude prices to their highest since November. Canadian oil has also jumped. The disruptions mean less supplies at a time when U.S. stockpiles have been shrinking every week since mid-November and getting closer to September’s three-year low. Drillers have been slow to restore output to pre-pandemic levels as they prioritize shareholder returns over growth. This further supports growing predictions that the oil market will return to a deficit this year, with some like Pioneer Natural Resources Co. Chief Executive Officer Scott Sheffield expecting oil to range from $75 to $100 a barrel.

Saudi Arabia cut oil prices for buyers in Asia, signalling that extra supplies from OPEC and its partners could loosen the market amid the rapid spread of coronavirus. State-controlled Saudi Aramco, the world’s biggest oil company, reduced February prices for all types of crude that will be shipped to Asia, its main market. It lowered the key Arab Light grade by $1.10 from January to $2.20 a barrel above a regional benchmark. Aramco cut prices for buyers in Northwest Europe for next month, while leaving levels for the Mediterranean region largely unchanged. All prices for U.S. customers were unchanged.

Read also: Oil races above $82 a barrel over supply disruptions

Ecuador lifted a three-week force majeure on all oil contracts as the country’s two pipelines that transport crude across the Andes resumed operations following a flare-up in riverbed erosion, allowing Amazon territory fields to restart production. Ecuador’s output has risen to almost 435,000 barrels a day since the Trans-Ecuadorian Oil Pipeline System — owned by state-run Petroecuador — and the privately-held Heavy Crude Pipeline went back online ahead of the New Year. Rescheduled exports of Oriente and Napo crude are to resume shortly, the Energy Ministry said in a statement late Wednesday. The government estimates a short-term income loss of $533 million from the incident.

Refined Products

U.S. – Exxon’s Baytown refinery on the Houston Ship Channel plans to shut Pipestill 7 crude unit the fourth week of January for a turnaround that will last about 7 weeks, people familiar with operations say. Turnaround will also include a Gofiner, which breaks down and desulfurizes heavy feedstocks from crude units so they can be sent to fluid catalytic crackers to make light-ends products like gasoline. Baytown will need to cut rates about 30% during the repairs and just shutting the 135k b/d Pipestill 7 will reduce crude capacity by 24% while the unit is in turnaround.

Europe – ICE gasoil January/February backwardation deepened by $1/ton to $2.75/ton.

Global – The total number of flights from 884 airports tracked by FlightRadar24 worldwide rose 26% to 18,540 on Jan. 4 from the same day in 2021 and was still down 26% from the 2019 level. New York LaGuardia saw the biggest one-year increase in flights, 154.1%, among airports with 80 or more flights. London Heathrow flight traffic on Jan. 4 was 32% down on same day in 2019, FlightRadar24 data show; Paris was 29% lower.

Macro & Capital Markets

Capital Markets – Asian shares snapped two days of losses this morning, climbing as investors waited to see whether U.S. jobs data due later in the day would reinforce the need for faster U.S. interest rate hikes. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3%, boosted by a 1.2% gain in the Australian benchmark where bank stocks were to the fore, though Japan’s Nikkei gave up early gains to slip 0.66%. Nasdaq futures rose as much as 0.5% in earlier Asian trading before giving up some gains to trade 0.25% higher, and S&P 500 e-mini stock futures advanced 0.17%. A key market driver this week has been the rise in U.S. yields following the publishing of the Federal Reserve’s December minutes. The minutes, published Wednesday, had shown that a tight jobs market and unrelenting inflation could force the U.S. central bank to raise rates more aggressively this year. The yield on benchmark 10-year Treasury notes was last at 1.7211% having reached 1.7530% overnight, its highest since April 2021, up sharply from its 2021 close of 1.5118%. The two-year yield , which is closely linked to inflation expectations, was at 0.8656% just off the overnight high of 0.886%. In currency markets, higher yields meant the dollar index , which measures the greenback against six peers, has risen 0.63% this week. This morning, the greenback held its gains against most majors while advancing 0.1% on the yen which was at 115.94 per dollar, in sight of Tuesday’s five-year high of 116.34.