Oil & Gas Supply Disruptions Likely To Have Stronger Effect on Europe & Asia

Crude oil remains slightly over the $100 price trading on a positive note to start off the week, while Brent oil added 32 cents to trade at 107.60 plunging steadily last week as supply outpaced global demand. Tensions in the Ukraine seemed to ease after the separatist vote yesterday as violence seemed to ceases after protestors went to the polls. Data at the end of the week showed that China’s imports of major commodities rose strongly in April, although a rise in crude oil and copper imports was attributed to stockpiling as a rebound in manufacturing in the world’s second-biggest economy remained modest. Crude imports rose by than a fifth from a year ago to a record high, while copper climbed for a second consecutive month to a three-month high. Crude imports from China, the world’s top energy consumer, rose more than a fifth in April from a year earlier to a record high of 6.78 million barrels per day (bpd), helped by higher seasonal demand and indications of stockpiling.  As refineries cut production during the peak maintenance season, the strong crude imports suggest some of the oil went straight into storage, with two new strategic reserve sites in Tianjin and Hangdog estimated to add 39 million barrels of storage capacity.

Asia is more at risk from a disruption in oil supplies than either Europe or the United States. That is according to a new report from Chatham House, which found that China and India are poorly positioned to handle such a supply crisis. The paper looked at what would happen in the event of a major supply disruption, such as the loss of 10 million barrels per day through the Strait of Hormuz. More than 40% of Asia’s crude oil supplies transits through the narrow strait in the Persian Gulf.

Brent advanced for the first time in three days amid speculation that increased tension in Ukraine may disrupt oil supplies from Russia, the world’s biggest energy exporter. Futures climbed as much as 0.4 percent in London. Ukraine’s eastern regions voted yesterday in favor of secession in a referendum they organized as government troops and pro-Russian rebels clashed. The global oil market is sufficiently supplied and demand is “great,” according to Saudi Arabia’s Petroleum Minister Ali Al-Naimi.

U.S. crude inventories dropped 1.8 million barrels to 397.6 million barrels for the week ended May 2, said the Energy Information Administration Wednesday. But even with the pullback of last week, stockpiles are still very high now. The current level of crude inventories is 2.1 million barrels higher from one year earlier.

The uncertainties of Ukraine put a big threat to the oil market. Russia is the second-largest producer of natural gas. More than 70 percent of Russian crude and gas exports to Europe pass through Ukraine. Traders said that a possible halt of Russian crude and natural gas supplies through Ukraine supported the crude prices.

Natural gas eased by 30 points this morning to trade at 4.505 as US natural gas is not subject to the possible disruptions in Europe as the US does not export much gas and does not have the facilities to ramp up for increased demand in the short term, so US natural gas is more dependent on US consumption based on residential demand for seasonal heating and air conditioning. With spring temperatures remaining moderate and summer well off into the future, gas is looking for a bottom.