January 2023 - Portland Fuel

Monthly Pricing - 01/01/2023

Brent crude started the final month of the year at $86.88/bbl, almost $10/bbl lower than at the start of November. It then continued to depreciate, hitting its lowest level on December 9th at $76.10/bbl. However, brent crude ended the month in a much stronger position, rising by 8% to trade at $83.26/bbl, as China’s demand started to recover following the easing of COVID restrictions and a harsh winter blizzard in the US impacted supply on the Texas Gulf Coast with a loss in production of up to 1million bpd.

GBP remained fairly consistent throughout December, starting the month at $1.220 against USD, and fluctuating between highs of $1.234 against USD and lows of $1.205 against USD, before depreciating slightly to end the year at $1.208 against USD, largely in response to the latest interest rate increase announced by the Bank of England on December 15th , which took a much more hawkish tone than anticipated, with officials stating that inflation had “peaked”, suggesting a potential slowdown of monetary tightening policy in the new year.

December saw the EU and G7 nations agree on a $60 per barrel price cap on Russian crude which was initially described by Ukrainian President Volodymyr Zelensky as “weak”, however, this cap and Russia’s resultant decree to ban the sale of oil supplies to any countries enforcing the sanctions, has put a strain on global supply levels just as the world’s top crude importer, China, starts to ease stringent lockdown measures and increase its levels of demand.

Price Drivers

Supply The US saw its largest onshore oil spill on December 7th, as the Keystone pipeline ruptured, spilling an estimated 14,000 barrels of oil into a creek in Kansas and with a 22,000bpd section of the pipeline still closed going into the new year. Storm Elliott saw up to two-thirds of the US issued with severe weather warnings as a sudden drop in temperatures caused up to 1million bpd of refining capacity to be shutdown in the Texas Gulf Coast, with Pemex still struggling to restore power.

Demand In early December, China announced the further easing of COVID-Zero restrictions, inspiring market confidence that demand would start to increase as the Chinese economy started to recover. However, according to Reuters, there are growing reports of “international concern” over the continued increase of COVID cases and deaths in the country. Markets generally responded well to the latest round of interest rate hikes from the central banks in December, with the Fed, ECB and BoE all announcing an increase of 50bps, despite concerns of a global economic recession.

Geo-Political On December 5th, the EU and G7 nations agreed on a $60 per barrel price cap on Russian crude and then also implemented a €180/MWh natural gas price cap in Europe as a temporary measure to limit market volatility as a result of the ongoing conflict in Ukraine. Russian President Vladimir Putin signed a decree on December 27th to officially ban the sale of oil supplies to any countries supporting the latest round of sanctions from February 1st, 2023, until at least July 2023.