Oil prices are trying to recover from the banking fiasco that divorced petroleum prices away from supply and demand fundamentals, states Phil Flynn of PRICE Futures Group.
Now with reports that First Citizens Bancshares Inc. has agreed to buy Silicon Valley Bank, and the fact that chairman of Saudi National Bank, Ammar al-Khudairy, the man that started a run-on Credit Suisse bank said that he is resigning for “personal reasons”, it might give oil and product prices a reason to rally as we prepare for another week where we should see supply in storage drop significantly.
Oil and petroleum products have been down on a crisis of confidence not based on current supply and demand fundamentals and that could do huge long-term damage, not only to the production side of oil but the refining side as well. The banking crisis may create a situation where we see tighter supplies than we normally would have in the coming weeks and months.
On top of that, Saudi Arabia—pushed closer to China by the Biden Administration—has announced a significant deal agreeing to buy a 10% stake in a Chinese oil complex. Bloomberg News reports that Saudi Aramco will spend $3.6 billion in a deal to expand its refining presence in China. Saudi Arabia also pledged at least 480,000 barrels a day of crude oil to the Rongsheng Petrochemical refinery for 20 years. This story will come as a huge disappointment to energy secretary Jennifer Granholm as well as other Biden administration officials who have been touting China as a leader in the green energy transition.
The resignation of Ammar al-Khudairy at Saudi National Bank reminds us that we have to be careful about what is said especially when it comes to international banking. Care must also be taken if your country holds a lot of money in a particular bank and you come out flatly and say absolutely not will you invest any more money if the bank gets in trouble. It kind of reminds me of Jane and Michael Banks and Mary Poppins. The only problem is I don’t think we’re going to see Mr. al-Khudairy flying any kites anytime soon.
We’re starting to see signs that confidence in the banking system is getting more solid even as concerns about which bank might be in trouble on Friday kept the market on edge. The bottom line is that the Federal Reserve is going to have to really reassess its messaging to the market as well as its interest rate increases to avoid more problems at regional and global banks.
Geopolitical risk factors are also supporting oil. China’s demand as well as the fact that Russia is going to put tactical nuclear weapons in Belarus is keeping the market on edge. Huge Chinese demand for oil and copper should keep those commodities very well supported. Reuters also reported that “Iraq halted crude exports from the semi-autonomous Kurdistan region and northern Kirkuk fields on Saturday, an oil official told Reuters, after the country won a longstanding arbitration case against Turkey. The decision to stop shipments of 450,000 barrels per day (bpd) of crude relates to a case from 2014 when Baghdad claimed that Turkey violated a joint agreement by allowing the Kurdistan Regional Government (KRG) to export oil through a pipeline to the Turkish port of Ceyhan according to Reuters.
Bloomberg reports that “Russia’s diesel exports are on course to hit a record this month despite European Union sanctions depriving the country of its biggest market. Moscow is so far shrugging off concern that the bloc’s recent import ban would force it to reduce exports amid a lack of alternative buyers. Instead, Turkey, Morocco, and other nations have stepped up purchases—though some cargoes from Russia are also being held in floating storage.”
Natural gas looks weak. EBW analytics reports that “The April contract repeatedly tested technical support last week, with intraday lows within a 2.5¢ range from $2.127-$2.152 from Tuesday to Friday. Supportive weather and a larger-than-normal EIA draw, however, proved sufficient to fend off downward pressure. A mildly bearish weekend weather demand loss and softening LNG feed gas demand prompted a swift retreat to the same level.
Learn more about Phil Flynn by visiting Price Futures Group.