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Oil climbs even as weaker demand concerns cap gains

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© Reuters. FILE PHOTO: Storage tanks are seen at Marathon Petroleum’s Los Angeles Refinery, which processes domestic & imported crude oil into California Air Resources Board (CARB), gasoline, diesel fuel, and other petroleum products, in Carson, California, U.S., Ma

By Sonali Paul

MELBOURNE (Reuters) – Oil prices firmed in early trade on Friday but were headed for their first weekly losses in three weeks as worries about inflation and China’s COVID lockdowns slowing global growth outweighed concerns about dwindling fuel supply from Russia.

Brent crude futures were up 97 cents, or 0.9%, at $108.42 a barrel at 0008 GMT, while U.S. West Texas Intermediate (WTI) crude futures climbed $1.00, or 0.9%, to $107.13 a barrel.

Both benchmark contracts were, however, on track to post declines for the week, with Brent set to drop more than 3% and WTI more than 2%.

The market is continuing to be pushed and pulled by the prospect of a European Union ban on Russian oil sapping supply and concerns about demand being dented by weaker global growth, inflation and China’s COVID curbs.

“The demand concern factors have grown quite a bit,” said Commonwealth Bank commodities analyst Vivek Dhar.

Inflation and aggressive rate rises have driven the U.S. dollar to 20-year highs, which has capped oil price gains because the strong dollar makes oil more expensive for buyers holding other currencies.

Analysts, however, continue to focus on the prospect of a European Union ban on Russian oil, after Moscow imposed sanctions this week on European units of state-owned Gazprom (MCX:GAZP) and after Ukraine stopped a gas transit route.

“Oil is finding support from supply concerns as Russia takes another step forward to weaponize energy,” said SPI Asset Management managing partner Stephen Innes.

An International Energy Agency report on Thursday highlighted the duelling factors in the market, saying rising oil production in the Middle East and the United States and a slowdown in demand growth are “expected to fend off an acute supply deficit amid a worsening Russian supply disruption”.

The agency said it saw output from Russia falling by nearly 3 million barrels per day (bpd) from July, or about three times more than is currently displaced, if sanctions for its war on Ukraine are expanded or if they deter further buying.

Commodities

After fires and floods, climate-conscious independents could determine Australian election

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© Reuters. Local residents Fiona and Ian Stuart stand near blackened trees on their property, burnt during the bushfires of the “Black Summer,” in Yatte Yattah, Australia, April 11, 2022. Picture taken April 11, 2022. REUTERS/Jill Gralow

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By Kate Lamb

SYDNEY (Reuters) – After some of the worst fires and floods ever to hit Australia, a new cohort of climate-conscious independents are threatening to shake up the federal election on Saturday, putting the government under pressure in key districts and potentially reshaping the country’s political landscape.

Enraged by the lack of government action on climate change, the candidates are campaigning hard on environmental issues in the hope of wooing moderate voters away from the major parties. 

“There is deep frustration that real action hasn’t been taken on climate change,” said Allegra Spender, 44, an independent candidate in the wealthy Sydney electoral district of Wentworth. “It’s become ideological rather than based on science and business, and that’s what people are seeking: just a rational, proportional response to the evidence.”

Spender, a former analyst with McKinsey & Co, is one of more than 20 independent candidates, predominately women, who are running for seats in traditionally conservative, mostly urban districts, and who draw some of their funding from Climate 200, a fund set up three years ago to back candidates looking to advance climate policy.

About half a dozen of these candidates have come to be known as the “teal independents,” reflecting the combination of their appeal to ‘blue’ moderate liberals and ‘green’ stance on climate change.

Opinion polls show the group is gaining traction among voters with their environmental, anti-corruption and gender equality policies, posing a threat to the established parties which have trodden lightly around the climate issue for fear of alienating voters in a country that is one of the world’s largest exporters of coal and gas.

Liberal Party leader Scott Morrison, who became prime minister in August 2018, seems likely to lose power at the election, ending nine years of conservative government. A poll conducted last week suggested the Labor Party would win 80 seats, more than the 76 needed for majority government. The poll showed the current government could be reduced to 63 seats with the remaining eight seats won by minor parties and independents. If the polls are wrong, as they were at the last election, a hung parliament where independents hold the balance of power is possible.

Treasurer Josh Frydenberg – the country’s most senior finance minister and widely seen as the next leader of the Liberal Party – is in danger of losing his Melbourne seat of Kooyong to a teal independent, neurologist Monique Ryan, according to a recent poll. Another independent, former journalist Zoe Daniel, is leading a poll in her Melbourne seat.

Spender appears to be attracting voters across the spectrum in Wentworth, which includes Bondi and some of the country’s most affluent harbourside areas.

“Climate change,” said 36-year-old Jess Daniel, when asked about her top priority after casting an early ballot in Bondi. “I have a little one and I am thinking of him, not just the here and now.”

After 58 years of voting conservative, Ian Tresise has donned the teal T-shirt and joined Spender’s army of 1,000 volunteers. 

“The world’s going to be cooked at 3 degrees,” he told Reuters, referring to global warming, as he handed out flyers at a Bondi pre-polling booth. “It’s getting pretty cooked at 1.5.” 

The goal of the Paris Agreement, which came into force in 2016, is to limit global warming to below 2 degrees Celsius, preferably to 1.5 degrees, compared to pre-industrial levels.

‘RACK AND RUIN’

A survey published by the Lowy Institute independent think-tank last May showed that concern over climate change is rising, with 60% of Australians agreeing that “global warming is a serious and pressing problem,” up from 56% the year before.

But away from the big cities, in areas which have experienced some of the country’s worst natural disasters in the last few years, opinions remain deeply divided.

In Conjola, a quiet holiday town on the south coast of New South Wales, some doubt climate change has anything to do with the fires that ripped through the town in the so-called “Black Summer” of 2019-2020, or the floods that followed weeks after, and again in recent months. The fires came after Australia’s hottest and driest year on record.

“These days we sneeze and its climate change,” said Barry, 59, who witnessed the Conjola fires. He asked to use his first name only, for fear of being targeted by climate activists.

For some in Conjola, as in the nation’s coal and gas heartlands, distrust of climate science is fused with concerns over jobs and rising living costs, which opinion polls show are still the most important issues for voters. Inflation hit a 20-year high in the first three months of the year, and voters are feeling the pinch as interest rates start to rise.

The fossil fuel industry is a significant employer in every Australian state. Mining accounts for 11.5% of the country’s economic output and fossil fuels make up about a quarter of total exports, according to Australia’s central bank.

“It’s a climate change election in that I want to vote for the government that is going to do the least,” said Barry. “Because closing coal-fired powered stations is going to cost jobs.”

Another Conjola resident, Samantha Kneeshaw, a high school science teacher who survived the fires by jumping in her pool with a scuba tank, said climate was the most important issue for her in the upcoming election.

“It is going to cause rack and ruin for so many people,” she said. “I cannot fathom this government getting back in again and not doing anything, because Australia is so crucial to this climate debate.” 

SHIFTING THE BALANCE

To achieve the Paris Agreement goal of keeping global warming under 2 degrees, the Intergovernmental Panel on Climate Change says the world needs to cut greenhouse gas emissions by 50% by 2030 and reach net zero by 2050.

Australia is well below that and was branded a “holdout” by United Nations Secretary-General Antonio Guterres in March. At global climate change talks in Glasgow last year, Australia refused to commit to phasing out coal or increase its carbon emission reduction targets.

Morrison’s coalition government has pledged to reduce emissions by 26% to 28% below 2005 levels by 2030 and hit net zero emissions by 2050, among the least ambitious of developed nations. But divisions within conservative ranks have raised questions over their commitment to the targets. In April, one Nationals senator in Queensland declared the government’s net-zero 2050 target “dead.”

After years of climate wars, many of Australia’s politicians have shied away from promoting renewable energy or trying to wean the country off fossil fuels for fear of a backlash from industry and some voters.

On the campaign trail, Deputy Prime Minister Barnaby Joyce, the leader of the Nationals, said he would not use the term “transition” applied to a move to cleaner energy as it “equals unemployment.” The opposition Labor Party is only slightly more ambitious, pledging a 43% reduction in emissions by 2030.

That has given the teal independents room to campaign on much more aggressive emissions targets. The group has already had an impact on the country’s politics, and has put establishment parties on the defensive.

New South Wales treasurer and energy minister Matt Kean, representing the Liberal Party, warned voters specifically not to vote for the teal candidates running against progressive Liberal Party candidates.

“To see what happens when the progressive voices are removed from centre-right political parties, just look at the Republican Party in the United States,” Kean said in an opinion piece published in the Sydney Morning Herald last weekend.

Frank Jotzo, a climate economist and professor at the Australian National University, said a general shift toward firmer climate change policies was underway.

“The fact that some of these climate change independents are getting so much interest and support in their respective electorates will shift the balance and is already shifting the balance among the parties they are competing with, in particular the Liberal Party.”

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Commodities

U.S. Strategic Petroleum Reserve drops to lowest level since 1987

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© Reuters. FILE PHOTO: A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson

HOUSTON (Reuters) – The amount of crude oil in the U.S. Strategic Petroleum Reserve (SPR) dropped by 5 million barrels in the week to May 13, data from the U.S. Department of Energy showed.

Stockpiles in the Strategic Petroleum Reserve fell to 538 million barrels, the lowest since 1987.

About 3.9 million barrels of sour crude was released into the market, while about 1.1 million barrels of sweet crude was issued, according to the data.

President Joe Biden in March announced the largest release ever from the U.S. emergency oil reserve at 1 million barrels per day (bpd) of crude oil for six months from the reserve.

The 180 million-barrel release is equivalent to about two days of global demand, and was the third time Washington had tapped the SPR in the six months prior.

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Commodities

Oil Climbs Another 3% as OPEC Paws Away Any Meaningful Output Hikes

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© Reuters.

By Barani Krishnan

Investing.com — Shut out the noise, stick to the script and let consumers’ problems be consumers’ problems, not ours. OPEC+’s stance worked well in pushing crude prices up for a fourth day in a row, adding some 3% to Monday’s session after an initial tumble in the Asian trading hours as market participants reacted to poor economic data out of China, the world’s largest importer of oil.

London-traded Brent settled at $114.24, up $2.9, or 2.4%. It sank to $109 earlier in the day.

New York-traded WTI settled at $114.20, up $3.71, or 3.4%. Earlier in the session, WTI fell to as low as $106.28.

The turnaround in crude prices came after Saudi Arabia’s Energy Minister Abdulaziz bin Salman said a dearth of refining capacity in the United States and elsewhere meant that gasoline and other oil products would remain expensive even if exporters pumped more crude. 

US fuel prices have hit record highs since last week, with gasoline at above $4.50 and diesel at around $6 at some pumps. Aside from a deficit in refining capacity, demand for fuels anticipated ahead of the peak summer season for travel is driving energy prices to hitherto unseen levels. 

Abdulaziz’s remarks form a now familiar OPEC+ refrain that there are “physical impediments that no producer can solve.” 

The 23-state OPEC+, which comprises the original 13 nations led by the Riyadh-led Organization of the Petroleum Exporting Countries with another 10 countries steered by Russia, have stuck to monthly increases of just above 430,000 barrels per day. That falls clearly short of demand that is at least 3 million barrels higher, as a direct consequence of the West’s sanctions on Russia that have de-legitimized an equal number of barrels that used to be on the market.

The United States is experiencing a severe squeeze in the supply of gasoline, and particularly diesel, from the closure and downsizing of several refineries during the Covid-19 pandemic. Refineries that have stayed in the business are now providing only what they can — or, more accurately, what they desire — without putting any of the money into expanding existing capacity or acquiring the idled plants that can be reopened to provide some measurable relief to consumers. One motivation for the refineries to do this: record profits from the current situation that may be diluted in an expansion. The other is the long turn-around time for any new refinery to deliver a profit.

Bloomberg estimates that more than 1.0 million barrels per day of U.S. oil refining capacity — or about 5% overall — has shut since the Covid-19 outbreak initially decimated demand for oil in 2020. Outside of the United States, capacity has shrunk by 2.13 million additional barrels a day, energy consultancy Turner, Mason & Co says. The bottom line: With no expansion plans on the horizon, the squeeze is only going to worsen.

“There is no refining capacity commensurate with the current demand and the expectation of the demand in the summer,” Abdulaziz reiterated on Monday in comments carried by Bloomberg from an energy conference in Bahrain.

His remarks were echoed by Bahrain’s Oil Minister Sheikh Mohammed Bin Khalifa Bin Ahmed. 

“There’s no new capacity coming,” Sheikh Mohammed said at the same event. “Even if you produce more crude, there isn’t demand for it, there aren’t any more refineries.”

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