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By David Gaffen, Editor, Energy Markets

Hello Power Up readers! The market’s expectations that the various shenanigans in Russia and OPEC’s cuts would bring substantially higher oil prices have…not panned out. Oil’s now clocking in the low $70s per barrel and the big rebound in China is coming in fits and starts. That’s good for fuel costs, however, and perhaps one reason why major world economies seem to be powering along. Here’s what’s going on.  

Today’s top headlines:

• EXCLUSIVE: India amends power policy draft to halt new coal-fired capacity
• Shell posts $10 bln profit as trading offsets lower energy prices
• COLUMN: Texas trumps California as key US energy transition driver

Natural gas installations for liquified natural gas in Point Fortin, Trinidad and Tobago. REUTERS/Andrea De Silva

Crude oil isn’t the only commodity that has been under pressure of late. Natural gas prices went nuts in 2022, largely as a result of Russia’s decision to cut supply to Europe after its invasion of Ukraine kicked off sanctions from the EU and United States. But a better-than-expected outcome for Europe – that is, a warm winter and lots of storage – has caused prices to dip, and U.S. nat gas is now trading near $2 per million British thermal units, the kind of level that persisted for ages before the pandemic.  

The lack of demand isn’t the only reason for low prices; output has grown as well, particularly in the U.S., which is now producing at record levels and keeping prices markedly lower. That’s good for consumers, as it will reduce fuel costs in the winter. But it isn’t great for producers, who may find the need to pull back on output, such as Chesapeake Energy, which said it would cut output by 4% to 6% due to lower prices and weaker demand, and APA, which will cut its budget by $100 million this year to curtail gas output. 

For the moment, U.S. production has been heading higher, and the gas rig count is “above levels that would keep production flat,” Citi analysts write. The International Energy Agency says the global gas markets are rebalancing but should remain tight in 2023 due to the reduced Russian deliveries to Europe. 

That’s a big tanker that was sold to Venezuela, where the fleet is in pretty bad shape.Sadra Company/WANA (West Asia News Agency)/Handout

Venezuela’s oil tankers are in awful shape, with more than half so run down they should be repaired or taken out of service, Mircely Guanipa reports here, citing an internal report from state-run oil company PDVSA shared exclusively with Reuters.

The nation, which sits on some of the largest reserves in the world, has seen production fall for years due to underinvestment and in recent years, U.S.-led sanctions. The report shows that the fleet’s deterioration has been dramatic, forcing PDVSA to charter tankers to move its oil. Five of the tankers are more than 30 years old – and PDVSA was forced to lease 41 vessels last year, paying about double the market rate. 

And because of an ongoing anti-corruption probe going on, additional tankers ordered from shipyards have been delayed, and the audits that have been ordered by PDVSA’s new head could put deliveries on ice for even longer. “All contracts are frozen,” one executive said on condition of anonymity.  

Iraqi Prime Minister Mohammed Shia al-Sudani holds a joint news conference with his Kurdish counterpart Masrour Barzani in Baghdad in April. Iraqi Prime Minister Media Office/Handout 

Oil exports out of Iraq’s semi-autonomous region of Kurdistan could resume in the next couple of weeks after being halted since late March, as Amina Ismail, Rowena Edwards and Julia Payne report here. Iraq is now expected to reach an agreement with the regional government to get a pipeline moving again after Turkey halted those exports on March 25. But that’s not going to be the end of the story, because the pipeline’s terminus is in Turkey, which may not want to reopen the line. 

What happened was that the International Chamber of Commerce (ICC) ruled that Iraq owed Turkey about $1.5 billion in damages for unauthorized exports; Turkey would still need to open its side of the pipeline to get exports going as well, so this story isn’t quite concluded. The line can send about 450,000 barrels a day. In early April, the Kurdistan government and Iraq agreed to restart flows, but the details hadn’t been worked out.   

Energy merchants with bumper profits.

Last year was a volatile one for the oil markets, and naturally, there are people who make bank off that. The world’s top 11 energy traders made around $77 billion in earnings last year, as Ron Bousso reports here, which doubles from the previous year, per Bernstein data. The two biggest traders are already oil companies – Shell and BP – but they boosted their results through their trading operations, and in fact, Shell’s $16.6 billion haul equaled about 20% of their total earnings.  

TotalEnergies, the French giant, also pulled in about 14% of its earnings through trading, per Bernstein calculations. The U.S. majors aren’t as big in trading (particularly Exxon Mobil) so the next few winners were the commodity merchants Vitol, Gunvor and Trafigura. Other large traders include Saudi Aramco and Petrochina.  

“If Brent prices remain in their current range or move a leg lower, we think OPEC would be prepared to take additional action to put in a price floor and scare off the shorts until fundamental factors become clear and in focus and more market participants vacate their spectator seats.”  

Helima Croft, head of commodity strategy at RBC Capital Markets 

Pemex posted a lousy first quarter, with profit almost cut in half to $3.15 billion due to weak sales, the Mexican national oil company said on Wednesday, as Ana Isabel Martinez and Adriana Barrera report here.  

The company is one of the most indebted oil giants in the world – and still has about $107 billion in debt, though that’s a slight decrease from 2022. And officials tried to put a good face on the report, noting that output picked up modestly, rising to 1.85 million barrels per day.

Mexico has been trying to revive old levels of production north of 3 million bpd through re-nationalizing much of the industry, but it hasn’t gotten it out of debt yet. The filing said it is “possible” that Pemex may not need government help to meet its regular 2023 debt payments of $4.6 billion. 

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