Let’s dive into some of the biggest oil market headlines from the past week. There’s been lots of oil headlines over the past week, ranging from updated price forecasts from the US government to pipeline outages to EU sanctions news.
Following the discovery of a leak on Thursday evening, the Watson pump station in LA, which feeds two important pipelines, was shut down. All lines flowing in and out of the station were shut down as a result of discovering gasoline in a hole at an excavated site. The SFPP West, which runs from LA to Phoenix, and CalNev, which runs from LA to Las Vegas, were temporarily offline. Service was restored on Saturday, before any disruption in supply security.
On Friday, a Singapore-flagged vessel was denied entry into a Spanish port because of its diesel products coming from a Russian ship. Following a suspension on Russian crude imports in 2022, the EU imposed a ban on Russian diesel imports starting on February 5. For vessels that changed flags after February 24, 2022, an EU standard is in effect. This follows a warning given by the Spanish government to service providers if they are caught assisting with ship-to-ship transfers of Russian crude products that, there will be repercussions. The denial shows the EU’s strict enforcement of its sanctions, highlighting the sharp loss of Russian oil products now that embargos are in effect.
Russia said on Friday that it aims to reduce its oil production by 500kb/d starting next month. There is discussion over a shift in taxation that would further stabilize Russian revenues. Russia’s output is still expected to decline by 570 kb/d between March and June, but risks are now more in favor of a front-loaded drop in March. This news, along with fresh investment capital entering the market and the continued reopening of China, caused prices to rise last week and could be a sign of more volatility and uncertainty ahead.
Speaking of future demand, according to its most recent Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration anticipates that global liquid fuel consumption will rise by 1.1 million barrels per day in 2023 and by 1.8 million barrels per day in 2024. The report further clarified demand will reach 99.65 mb/d in the first quarter of this year, 100.05 mb/d in the second, and 100.99 mb/d in the third, finally climbing to a peak of 101.19 mb/d in the last quarter of the year.
The U.S. Federal Reserve’s decision to keep raising interest rates is another topic of discussion in the markets. The report on the January Consumer Price Index is expected to provide some insight. There are concerns that the hikes could cause the economy to enter a recession. Central bank officials have said more action may be required despite lowering inflation.
Among all of this news, you are probably still wondering what this means for prices. The EIA and the STEO still expect petroleum product prices, such as diesel and gasoline, to be lower than last year. Prices are still not at pre-pandemic levels; however, as we continue to analyze how the EU sanctions pan out, they pose a significant risk of supply disruptions and uncertainty to forecasts and pricing.