- OPEC+ Voted to Increase Production by 400,000 barrels per day (bpd) for March, though the pact again missed their total quota due to underproduction in many countries. OPEC pumped 28 million bpd (mbpd) in January, a Reuters survey found, up 0.020 mbpd from the previous month but short of the 0.025 mbpd increase allowed under their supply deal. Malaysia, Nigeria, Equatorial Guinea, Angola, Sudan, Congo and Azerbaijan collectively are under-producing versus quota due to a lack of output capacity. Iraq output declined slight to 4.2 mbpd, just shy of quota. Russia announced they will have restored 1.8 mbpd of the 2 mbpd of oil production it agreed to cut in April 2020 with an eye to restoring its oil production to pre-pandemic levels by May 2022. Russia is the OPEC+’s largest producer, followed by Saudi Arabia. Order looked to be restored in Kazakhstan and oil production in Kazakhstan gradually returned to normal according to Chevron, the largest foreign producer there. Whether OPEC+ can reach full production in 2022 is an open question as rock-bottom prices in 2020 interrupted needed investment. On the other hand, $90+ prices per barrel (and higher!) make those leaders very happy.
- US Oil Production declined versus last month to 11.5 mbpd during January while operating rigs jumped higher from 480 as of December 31st to 495 as of January 28th. Per AAA, US average regular gasoline prices increased to $3.38 on January 31st, up from $3.29 per gallon last month, and close to the high of $3.42 in early November. Biden’s acceleration of oil sales and swaps have basically been overcome by market forces. A drop in the proverbial bucket. Crude output from major U.S. shale formations was due to rise to 8.54 mbpd in February, the highest since March 2020, according to the US government. Of that, the Permian Basin’s output is set to reach 5.1 mbpd, also a record. US crude exports are ramping up due to increasing demand from Asia and Europe and recovering U.S. production from the lows of the coronavirus pandemic. Cargoes booked for February are headed to numerous countries including China, South Korea and India. Finally, a federal judge invalidated the results of an oil and gas lease sale in the Gulf of Mexico saying the Biden administration failed to properly account for the auction’s climate change impact. The decision cast uncertainty over the future of the U.S. federal offshore drilling program and could provide a renewed energy crisis if upheld.
- China’s Crude Oil Imports could rebound by +6-7% this year, reversing 2021’s rare decline as buyers step up purchases for new refining units and to replenish low inventories. China offloaded nearly four million barrels of Iranian crude oil into state reserve tanks in the southern port city of Zhanjiang over the past few weeks, per ship tracking specialist Vortexa Analytics. To avoid the sanctions, Iranian crude has been exported to China marked as oil from Oman, the United Arab Emirates and Malaysia. Overall, imports from Iran have accounted for about 6% of China’s crude oil imports. China’s coal output hit record highs in December and in the full year of 2021, as the government had miners ramp up production to ensure sufficient energy supplies in the winter heating season. China, the world’s biggest coal miner and consumer, produced 384.67 million tonnes that month, up +7.2% year-on-year.
- European Energy Floundered on news that storage sites were only 51.6% full rather than the almost 54% previously reported, underscoring the continent’s vulnerability to Russian economic pressure. A computer hack that took down two German storage and supply companies added to the sense of that country’s defenselessness. Truly foolish, or at best naïve, situation that Merkel put her country in.
- Two Noted Consultancies Cut Brazil’s 2021/22 Soybean Crop due to bad weather, estimating the expected output below the 130 million-tonne threshold. AgRural said it now expected oilseed output to reach 128.5 million tonnes, down from a previous projection of 133.4 million tonnes, while AgResource pegged the crop at 125 million tonnes from 131 million previously. However, Brazil’s 2021-22 soy harvest was 16% completed as of Feb. 3, compared with 10% a week earlier and 4% a year before. Summer corn harvest also was ahead of last year at 18% done, compared with 14% a year earlier. Similarly, the Buenos Aires Grain Exchange reduced Argentina’s 2021-22 soybean production estimate to 42m tons versus a prior, preliminary estimate of 44m tons. On the other hand, Ukraine exported 38.6 million tonnes of grain so far in the 2021/22 July-June season, up 31.6% at the same time a season earlier. Russia may harvest 82.4m tons of wheat in 2022, up from 75.3m tons in the prior season. That could bring exports to 38m tons, versus 32m tons. China’s 2021 pork output jumped +29% from the previous year, recouping most of the production lost during a devastating outbreak of African swine fever two years before. Annual output reached 52.96 million tonnes last year, just below the 53.4 million tonnes produced in 2017. This put the pressure up a notch for China to increase domestic soybean output – the current five-year plan set a goal to produce about 23 million tonnes of soybeans by end of 2025, up 40% from current output levels of 16.4 million tonnes. As we go to press, the Biden administration started going after China for not adhering to the Trump-era purchase agreement. Interesting times.
- Irish Central Bank Made First Reserve Gold Purchase Since 2009 as it bought 2 tons of the precious metal in recent months. Reportedly the move came amid increasing concern about the inflation outlook…
Finally, Hong Kong, suspecting that imported hamsters may have spread Covid-19 to humans, ordered the culling of two thousand of the small mammals, closed shops selling them and sent more than 100 pet shop visitors into quarantine camps. The escalation came after nearly a dozen hamsters imported from the Netherlands and sold at a local pet store called Little Boss were found to be infected with the Delta variant that hadn’t been detected in the city for months until a positive test. The Hong Kong government later offered “hamster reparations” to compensate affected pet shops.
All the best in your investing! Stay healthy!
David Burkart, CFA
Coloma Capital Futures®, LLC
Special contributor to aiSource