Crude oil prices edged lower to start the week, with demand for fuels in the US and Europe starting to show signs of waning, together with renewed signs from the Fed that it’s not in any urgent hurry to cut rates.

Once again, oil trading seemed to mirror developments in the broader economy.

Oil trading: Brent, WTI market opportunity

Earlier today, Brent crude was trading around $83 per barrel and West Texas Intermediate around $78 per barrel, having lost 1% in the overnight session following the EIA report of increased gasoline and distillate inventories and as traders were betting that rate cuts will come later than expected.

Changes in inventory are crucial in oil trading, determining how the price moves and how markets react, especially the refining side.

The EIA report showing a modest increase in gasoline and middle distillate stocks the week ending May 3 – up 900,000 barrels and up 600,000 barrels respectively – made an impression on the trade heading into the summer driving season and suppressing crude oil trading for most of the week.

Oil trading: China demand

Bloomberg said: ‘The latest data on inflation in China added to pessimism about oil demand.’

Meanwhile, Reuters said: ‘The latest economic numbers in China may signal a bounce-back in consumer demand.’ Did the numbers point in such opposite directions? Why is this the case? Because oil is traded by real people.

And when the economic numbers from a major economy such as China show a given trend, it can impact their trading decisions.

Oil Trading Price Soars: Discover trading boom!

China’s April CPI reading showed an annual rise of 0.3%, with core inflation up by 0.7% for the month.

One analyst at China Everbright Bank commented: ‘The price data show that domestic demand is recovering, supply and demand continue to improve, and the outlook for domestic demand and price recovery is optimistic.’

Yet, the same analyst cautioned: ‘Consumer prices are still low and the industrial manufacturing sector remains under pressure, reflecting insufficient effective demand and a lack of balanced recovery in the sector.’

This is the level of nuanced understanding of market conditions that an oil trader needs to make decisions.

Barring a change of heart, most pundits believe the OPEC+ production cuts will be continued when the cartel meets in early June.

As noted in previous ends, the production story will remain a key driver of oil prices, for now, for as long as oil traders are willing to give the verdict to cartel decisions on production.

IEAs executive director Fatih Birol called out OPEC last week for the connection between petroleum prices and inflation, which has wider economic implications. ‘It’s up to them to decide what they want to do,’ Birol said last week, ‘but in this very fragile situation of the global economy, the least that the countries, especially oil-importing developing countries, would need is high oil prices, which in turn would push inflation numbers up.’

Birol’s warning underscores the delicate balance between oil volumes and the health of the global economy.

Nigeria has begun oil output from a new field in the Niger Delta and could boost crude output by 40,000 barrels of oil per day in May as Africa’s biggest crude producer increases capacity for trading.

Upstream subsidiary of the Nigerian national oil company, NNPC Exploration and Production Limited, said it has begun production of oil from Oil Mining Lease (OML) 13 in Akwa Ibom State, in southern Nigeria, in a move described as being of huge importance to the pursuit of energy transition.

The oil, a deep-water recovery, came into production on 6 May this year, with an initial output of 6,000 barrels which is expected to rise to 40,000 barrels per day by 27 May 2024, according to NNPC.

Meanwhile, oil trading interests will be interested to read that it was a Nigeria-based team, including Natural Oilfield Services Ltd (NOSL), a subsidiary of the indigenous oil and gas producer Sterling Oil Exploration & Energy Production Company Ltd (SEEPCO), that completed the rehabilitation of the leased facility, which was brought to the brink of abandonment by the previous operator.

This development, according to the NNPC statement about the feat, ‘marked the first oil from OML 13 and would contribute to efforts towards increasing Nigeria’s crude oil production capacity and in turn, guarantee the nation’s energy needs and stimulate economic growth.’

Looking ahead, Nigeria wants to increase its oil output over the next few years, creating more economic value. Related to oil trading, this information is very important for everyone to know.

Nigeria is launching a new licensing round for oil and gas. On 10 May, the country placed bids for 12 offshore and onshore blocks. Bidding began last week, promising a transparent process to the oil trading stakeholders present at the Offshore Technology Conference (OTC) in Houston, Texas.

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) announced the launch of the 2024 Licensing Round.

In recent years, international majors have scaled down their operations in Nigeria’s energy sector mostly due to the lack of transparency in the licensing rounds, oil theft, frequent pipeline damages and consequent force majeure on crude oil exports.

It is important to address these concerns to improve the modalities of oil trading with Nigeria.

NUPRC’s chief executive, Gbenga Komolafe, said from Houston: ‘This year’s licensing round is expected to be very successful for Nigeria, the aggressive pursuit of exploration and development activities aimed at increasing the country’s oil and gas reserves, production and market utilisation of gas opportunities will be uplifted.’

All in all, the prospects for oil-trading portfolios in the region look good right now.

Eni is considering carving out stakes in oil and gas projects in Asia and Africa to draw new partners into development, while boosting funds for low-carbon energy projects, sources inside the Italian major told Reuters this week.

The need to diversify into new energy projects is a key part of the firm’s strategy for oil trading at a time when the sector is facing multiple challenges.

Eni has consistently pursued this approach in recent years to its conventional and low-carbon businesses, in contrast to its largest Western international oil and gas peer group, which has continued to invest in upstream oil and gas globally, while segregating its low-carbon assets out of its core business altogether.

This brings fresh dynamics to oil markets, classic energy investment and trading is being tempered and balanced by transitionary energy investment.

Both these spin-offs, and the so-called ‘satellite strategy’ more generally, hinges on the companies’ separate balance sheets, recognising that ‘needs to keep together the need to produce traditional products and creating new, greener products,’ as Eni’s chief financial officer Francesco Gattei told Reuters.

It is a model that is very relevant to oil trading stakeholders.

For example, Eni late last year agreed to sell a 9% stake in its low-carbon energy unit, Plenitude, that valued the business at around $10.8 billion (10 billion euros).

Plenitude is active in power generation, including renewables, as well as energy sales and solutions, and an extensive network of EV charging points.

Diversification plays a role in how oil traders bet on the future by melding traditional energy markets with renewable energy ones.

Moreover, Eni has just signed an accord with the UK oil and gas giant Ithaca Energy to consolidate nearly all its UK upstream assets, except those in the East Irish Sea and those related to CCUS activities.

Eni’s increased activity on the UK Continental Shelf will alter all aspects of the oil market by adding regionally focused production capacity.

The CEO of Eni, Claudio Descalzi, said: ‘This agreement is further proof that Eni is responding to market changes and, in this case, the application of the Satellite Model of ours.’

Sources at the company have told me that the company could soon spin-off its oil and gas projects in other important oil-trading nations such as Indonesia and Côte d’Ivoire.

Back in February, Eni announced its fifth offshore discovery in Côte d’Ivoire, the second-largest after Eni’s September 2021 Baleine field discovery; and near the end of last year, Eni announced a major gas discovery in offshore Indonesia in the Kutei Basin, located around 85 km off the coast of East Kalimantan.

These developments have repercussions for oil trading, creating new opportunities and threats for the market.

Siding with the world’s biggest solar panel producers, the European Commission yesterday suspended its antidumping investigation into seven Chinese companies that withdrew from an EU solar power contract in Romania after they were accused of selling the panels at unfairly low prices. The decision could reverberate as far as oil trading.

In April, the European Commission launched a detailed investigation pursuant to the Foreign Subsidies Regulation into the bidders ENEVO and Shanghai Electric UK Co Ltd and Shanghai Electric Hong Kong International Engineering Co Ltd over their alleged market-distortive role as recipients of foreign subsidies within the context of a public procurement procedure.

Such developments may have a clear impact on trading in oil due to the effect they may have on energy-market competition and policy.

The companies vied for the construction, operation and maintenance of a photovoltaic park in an EU member state (Romania) with an installed capacity of 454.97 megawatts (MW) – a project subsidised, at least in part, by the EU Modernisation Fund.

The EU launched the investigation because it had ‘sufficient reason to believe that both the tenderers have received foreign subsidies that, according to the basic players in the relevant internal EU market, distort the internal EU market’.

Oil trading had been disturbed because the competition had been altered.

But now that the Chinese companies have dropped out of the bidding, ‘the Commission will close its in-depth investigation’, Breton said today. It might also shift attention back to old-fashioned energy markets, such as oil trading.

Announcing an end to the probe, Breton added that boosting solar power was essential to safeguard Europe’s economic security.

‘We are investing massively in the installation of photovoltaic systems to reduce our carbon emissions and our energy bills, but this should not come at the expense of our energy security, industrial competitiveness and European jobs,’ he said.

Oil markets are more than a means of transporting energy: they are also a huge store of capital that key stakeholders in oil trading are intent on protecting.

Building on this, Breton added that ‘the Foreign Subsidies Regulation makes sure that foreign and non-foreign companies that operate in the European economy respect our rules of fair competition and transparency.’

This regulatory regime could potentially even out the uneven playing field between different energy sectors when it comes to trading oil.

The EU has been increasingly attempting to shield its makers of wind and solar equipment from Chinese competition.

Some EU manufacturers have shut down plants, and many more are threatening to do so in response to large flows of imported solar panels, especially from China, and elevated stocks of panels that threaten demand for the more expensive EU-made solar equipment.

The competitive pressure exerted by the renewable energy sectors could lead to potentially disruptive shifts in the market for oil – altering flows of funds, changing the dynamics of oil trading and oil investment.