By: Harry Altham, Energy Analyst, Market Analysis EMEA & Asia
Oil’s tumble over the last two weeks continued early this morning amid wider selling in equities, as the second half of the year commences with renewed concerns over the economic outlook after the summer. However, prices surged at 09:30 BST as news emerged that all four export terminals in Libya have declared force majeure due to protestors blocking access routes, meaning no oil is flowing out of the country at present. While U.K. petrol sales rose by 2.7% last week, it is important to consider the data in the context of widespread rail strikes which brought much of the country to a standstill. July is typically the peak month in U.S. oil product demand, which is led by 4th July Weekend; we are expecting inventory data for the week after next to show a sharp uptick in oil products supplied, although the greatest indication of the true effects of demand destruction (if at all) will be a four-week average consumption figure at the end of this month. The American Automobile Association predicts that 500k more people will be on the roads this weekend versus 2019, which is being aided by a $0.15 drop in average retail gasoline prices across the U.S. versus mid-June (although at $4.857/gallon, prices remain expensive for hard-hit consumers).
India has introduced a windfall tax on fuel exports, in a multipronged attempt to reign in a spiralling fiscal deficit while trying to control inflation. The country has also asked refineries to ensure domestic needs are met before pursuing exports; India’s refineries are generally split into export facing facilities and domestic plants. India exports around 850k bbd of diesel and 1.5M bbd of gasoline, which is double what it exported in 2019. The increased levies will be of concern to Europe, which has been ramping up refined product imports due to the shortfall created by falling purchases from Russia. The consequence of the tariff will be higher costs for exported oil, which will be passed onto European consumers who are already experiencing record prices at the pump. That said, India is able to refine enough oil to meet its 5.2M bbd demand but not more; we expect the move could see exports fall as arbitrage opportunities diminish in the higher cost environment. The result of this is that Europe is likely to become more reliant on Gulf crude, whose grades are currently the most expensive in the physical market.
Iraqi seaborne oil exports for the month of June have come in at 3.7M bbd, which is slightly lower than in May but just above the three-year high seen in April. Around 23% of exports were destined to China, while an increasing amount appears to be heading towards Europe, whose imports of diesel from the region reached three-year highs at 850k bbd last month. Iraq is among the OPEC+ countries which ratified a 648k bbd increase in output for August; the country produced 4.5M bbd in June and is among the few countries that are successfully achieving quotas in the group as it retains spare capacity in its production facilities.
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