Energy Prospectus

(Bloomberg) -- Tough US sanctions on Russian oil are
allowing the biggest Middle Eastern producers to raise prices
for their main market by the most in years, and may help bring
in additional petrodollars to meet crucial funding needs.
Iraq, the second-biggest supplier in the Organization of
the Petroleum Exporting Countries, boosted the selling price of
its main grade to Asia to the highest level since September
2022. Saudi Arabia had its own big increase last week while
prices in the United Arab Emirates rose to the highest since
September.

Russia is facing an impending oil tanker shortage and Iran
is under renewed threat of tighter sanctions, forcing buyers to
look for replacement supplies of comparable Middle Eastern crude
and pushing up in the region. Dubai swaps, the benchmark for the
Gulf, have continued to surge, according to PVM Oil Associates
data. The discount to Brent crude futures hit the narrowest
since June on Friday, illustrating thirst for the region’s oil.

The increases will likely bring some relief for the
countries in the region. While oil remains far below the level
needed by the Saudis to balance their vast spending plans, any
price bump will ease pressure on the kingdom which is one of the
largest bond issuers in emerging markets over the past year.
Iraq is trying to squeeze out as much revenue as it can with
this price bump to help its economy.

Refining margins in Asia have also improved in recent weeks
after some processors cut back production, another factor
playing into the large increases in prices.

The Middle East’s biggest producers mostly set their prices
for buyers with long-term contracts on a monthly basis, with top
exporter Saudi Arabia setting the tenor for the region.

Iraq raised the cost of its Basrah Medium crude by $2.60 a
barrel, to a premium of $2.65 over the regional benchmark for
buyers in Asia in March, according to a price list from the
state marketer SOMO. Basrah Heavy crude will jump by a similar
amount with both grades at the highest since September 2022.

Prices have also jumped for March supplies of crude from
Abu Dhabi and Oman, the two producers whose prices are
determined by trading on exchanges. Abu Dhabi’s flagship Murban
crude will sell for $80.22 a barrel in March, up from $73.28 in
February. Omani crude saw a similar jump of more than $7 a
barrel from month to month.

From Trading Economics:
WTI crude oil futures added nearly 1.3% to settle at 72.3 per barrel on Monday, as supply concerns mounted following new US sanctions, even as investors largely brushed off President Donald Trump’s latest threat. The sanctions targeted individuals and tankers involved in transporting Iranian crude to China, increasing pressure on Tehran. However, the rally was capped by lingering fears over the economic impact of President Donald Trump’s recent tariffs on steel and aluminum, which could disrupt the US energy sector—particularly oil drillers reliant on specialty steel unavailable domestically. Additionally, China’s retaliatory tariffs on US goods took effect today, though their impact is expected to be limited due to China’s relatively small imports of US energy products. While supply constraints are providing upward momentum for oil prices, market sentiment remains cautious amid escalating trade tensions and broader economic uncertainty.

There is less "noise" in the U.S. Natural Gas Market:
US natural gas futures rose above $3.45/MMBtu, driven by higher LNG exports and colder weather forecasts, which are expected to boost heating demand. Gas flows to LNG export plants also increased to 15.1 bcfd so far in February, up from 14.6 bcfd in January, nearing December’s record. < Current design capacity of all of the U.S. LNG export facilities currently in service is 17.8 Bcfpd.

Looking ahead, meteorologists predict colder-than-normal weather through February 22, which will likely maintain high demand.
> Extreme cold in January likely prompted record-level withdrawals from storage, potentially close to the all-time high of 994 bcf in January 2022.
> On the production side, February gas output in the Lower 48 states has risen to 106.1 bcfd, up from 102.7 bcfd in January, though daily production is set to fall slightly. < This Wednesday's winter storm hitting Chicago brings a lot of snow and could impact Ngas production in Appalachia. The next much colder front (sub-zero in Chicago) that follows on February 16th is almost sure to cause well freeze offs in Eastern Ohio and Southwest PA. Look at the weather for Pittsburg.
> Meanwhile, Chinese tariffs on US products including LNG, are due to take effect on Monday, with no sign as yet of progress between Beijing and Washington.