Is the Kazakhstan situation supporting oil prices?

The ongoing Kazakhstan situation may be providing oil with a bit of a boost.

Oil trading

Kazakhstan civil unrest may be supporting crude oil

Kazakhstan is in a state of civil unrest.

Protests over high fuel prices have been the catalyst for years of simmering resentment leading to mass protests across the country. Kazakh President Kassym-Jomart Tokayev has dismissed his government, and even switched off internet connections nationwide.

Is this situation good for crude oil?

Key benchmarks started the week fairly strongly but have since continued to chop sideways. Many thought the Kazakhstan situation, which has seen production output at some of its major fields fall due to staff shortages, may help put a support under oil.

At the time of writing, WTI futures had gained 0.8% on the day, trading for around $79.12.

Brent was performing in a similar fashion. At $81.45, the North Sea benchmark was up 0.87%.

Kazakhstan’s oilfields are partly in the hands of the supermajors. Chevron, for instance, has a 50% stake in the giant Tengiz field, alongside ExxonMobil, KazMunaiGas and Lukoil, has said output may have dropped. Logistical and staffing issues thrown up by the national protests are the main cause.

For context, Tengiz produces around 700,000 bpd annually and is key to Kazakhstan’s OPEC obligations. Kazakhstan’s annual output coms to 1.6m bpd.

Last week, OPEC+ decided to raise production by a further 400,000 bpd in February. It will be interesting to see what the Kazakh revolution’s impact will be on this figure. Maybe other OPEC members will have to raise their output to cover any potential shortfalls.

Gulf States producers are reportedly meeting in China to help cover shortfalls in China-bound supplies.

It’s hard to see the long-term impact of Kazakhstan’s national unrest on oil right now. Things may become clearer across the week, but the potential for a supply squeeze-induced support is there. Keep watching for Central Asian developments to see how this pans out.

The initial news did give oil the jolt it needed to take Brent and WTI above $82 and $80 respectively, but as mentioned above, crude futures are a bit choppy at the time of writing.

Are hedge funds feeling bullish or bearish?

Oil has started 2022 in a much stronger position than it did in January 2021. The prices for key benchmarks are some $30 higher than this time last year.

So, are hedge funds feeling good about oil’s prospects? Potentially. According to reports, it appears the oil selloff is over. Instead, funds are looking to snap up more oil stocks.

Hedge fund speculators bought the equivalent of 56m barrels of six important petroleum and crude oil futures contracts in the weeks up to December 26. Over the past two weeks, the total has risen to around 70m barrels.

There are a couple of reasons for this change of heart. Remember how we all thought Omicron would be the second coming of the apocalypse and damn us all to another round of lockdowns? That doesn’t look the case anymore.

Gasoline demand is in line with usual expectations in the US. Omicron is not as deadly as first thought. Travel is fairly normalised worldwide. Plus, the narrative appears to have shifted from lower demand to tighter supplies globally.

All of the above should be helping to support global oil prices. OPEC+’s decision to boost output again in February is a sign of market confidence. Hedge funds appear to be buying into the feeling that 2022 could be a much better year for oil.

A quick look at US crude oil inventories

The latest set of EIA inventories data is released on Wednesday 12th January, focussing on stockpiles for week ending January 9th.

We might be able to get insights into what to expect by looking at the numbers for the previous week.

According to the EIA, US commercial crude oil inventories decreased by 2.1 million barrels from the previous week.

At 417.9 million barrels, U.S. crude oil inventories are about 8% below the five-year average for this time of year.

Total motor gasoline inventories increased by 10.1 million barrels last week and are about 4% below the five-year average for this time of year.