Oil Prices Surge 2% Amid Russian and Iranian Supply Concerns

Oil prices rose by about 2% to a five-week high due to concerns over supply disruptions linked to U.S. threats against Russia and Iran. Brent crude settled at $74.74 per barrel (+1.5%), while WTI crude closed at $71.48 per barrel (+3.1%), marking their highest levels since late February. Brent's premium over WTI dropped to $3.02, its lowest since July 2024, potentially reducing U.S. crude exports. President Trump threatened 25%-50% secondary tariffs on Russian oil buyers and possible military action against Iran over nuclear negotiations. Iran responded by seizing two foreign tankers carrying over 3 million liters of allegedly smuggled diesel fuel. Chinese and Indian buyers' reactions will be critical in determining the impact of U.S. sanctions on Russian oil exports. U.S. crude production dropped by 305,000 barrels per day to 13.15 million bpd in January, the lowest since February 2024. Global demand signals improved, with China's manufacturing sector growing at its fastest pace in a year and German inflation easing, supporting potential ECB rate cuts.

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Caspian Pipeline Consortium Cuts Operations, Halving Export Capacity

The Caspian Pipeline Consortium (CPC), which exports oil from Kazakhstan and Russia via the Black Sea, halted operations at two of its three mooring points, potentially reducing export capacity by 50%. The pipeline, responsible for about 1% of global oil supply, has faced repeated disruptions since Russia’s invasion of Ukraine, including previous closures and drone attacks affecting its pumping capacity. The current suspension follows a Russian transport watchdog inspection after an oil spill in December 2024. CPC did not specify the exact violations but confirmed that only SPM-3 will remain operational from March 31. In April, CPC had planned exports of 1.7 million bpd, and in 2024, it transported over 63 million metric tons (1.4 million bpd). Key CPC stakeholders include Transneft (24%), KazMunayGas (19%), Chevron (15%), Lukarco (12.5%), and Mobil Caspian Pipeline Company (7.5%).

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Sanctions Impact Russian Shipowner Sovcomflot’s Profit and Tanker Operations in 2024

Russia’s state-owned shipowner, Sovcomflot (SCF Group), has reported significant challenges due to Western sanctions, which have severely impacted its operations in 2024. The company's transported volumes dropped by 16%, falling to 63 million tonnes, and its net profit plummeted by 55% to $424 million. Revenue also fell by 19% to $1.87 billion. Sovcomflot’s CEO, Igor Tonkovidov, acknowledged the geopolitical factors and sanctions as key reasons for the downturn, noting that the company faces additional pressures from new sanctions imposed by the US in January 2025. Despite these challenges, Sovcomflot is aiming to maintain cargo levels for crude, oil products, and gas in 2025. The company has been targeted by sanctions from the US, EU, and UK, which have affected its fleet and management units. In a significant move, a Sovcomflot tanker, previously sanctioned, recently exported the first Russian diesel to Syria in over a decade, reflecting continued Russian efforts to circumvent international restrictions.

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Repsol Negotiates with U.S. to Maintain Operations in Venezuela

Spain’s Repsol is in active talks with U.S. authorities after Washington decided to revoke its license to export Venezuelan oil. The company, which previously received oil from PDVSA as debt payment, is seeking alternative mechanisms to continue operations while complying with international sanctions. The U.S. has given Repsol until May 27 to wind down its Venezuelan activities. Other foreign oil firms, including France’s Maurel et Prom and Italy’s Eni, have also been affected by the decision. Meanwhile, Venezuela's government criticized the sanctions as economic warfare and invited affected firms to continue operations under new contracts. Last week, President Trump imposed a 25% tariff on any country purchasing Venezuelan oil, further tightening restrictions. The revocation impacts global refineries from Spain to India, affecting companies like India’s Reliance Industries and U.S. Global Oil Terminals. Despite sanctions, Venezuela’s oil production remained stable as of Monday.

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US Oil Production Falls to 11-Month Low in January

U.S. crude oil production dropped by 305,000 bpd to 13.15 million bpd in January, marking its lowest level since February 2024, according to data from the U.S. Energy Information Administration (EIA). This decline represents the largest monthly decrease in U.S. oil output since January 2024. Texas, the top oil-producing state, saw a significant drop of 105,000 bpd to 5.58 million bpd, while New Mexico, the second-largest producer, experienced a decrease of 53,000 bpd to 2.06 million bpd. Additionally, natural gas production in the Lower 48 states fell 1.7% to 116.3 billion cubic feet per day (bcfd) in January.

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Norway Begins Oil Production at Johan Castberg Field in the Arctic

Norway’s Johan Castberg oil field in the Barents Sea has commenced production, marking a significant milestone for the country’s Arctic oil ventures. The project, developed by Equinor ASA and Var Energi ASA, is expected to reach peak production of around 220,000 barrels per day. With an estimated development cost of 86 billion kroner ($8.1 billion), the project is expected to recover its investment in less than two years, with a productive lifetime of 30 years. The field is part of Norway’s strategy to strengthen its role as a major energy supplier to Europe, especially as the Barents Sea holds more than 60% of the country’s undiscovered hydrocarbons. The Johan Castberg field will continue to be explored, with future production expected to peak in the second quarter of 2025.

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Jones Act Reform: US Tanker Owners Weigh Options Amid Proposed Port Fees

As the US considers imposing fees on Chinese-built ships to boost domestic shipbuilding, industry leaders suggest revisiting the Jones Act. The 1920 law mandates that vessels trading between US ports must be American-built, owned, and crewed, but critics argue it raises costs and hampers competitiveness. Navios Maritime’s Ted Petrone and International Seaways’ Lois Zabrocky believe modifying the law could support US shipping capacity. Meanwhile, proposed port fees are already discouraging shipowners from ordering new vessels in China, with many turning to South Korean yards despite higher costs. The debate highlights tensions between protectionist policies and global market realities.

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Clarksons Predicts Widening Discount for Chinese-built VLCCs Due to Potential US Port Fees

Clarksons Securities forecasts that the valuation gap between Chinese-built VLCCs and their South Korean and Japanese counterparts could grow significantly, potentially reaching a 15% discount. This prediction stems from the US government's consideration of imposing port fees up to $1.5 million on Chinese-built ships. Currently, 23% of the global fleet is Chinese-built, and Chinese shipyards account for 53% of the existing orderbook. While shipbuilding costs in China are around 15% lower than in South Korea, the discount in actual sales prices has historically been due to perceived quality and fuel efficiency differences. Clarksons analysts note that Chinese-built vessels are typically valued at a 7% discount for eco-VLCCs and 10% for non-eco VLCCs compared to South Korean-built ships. This discount could widen further as Chinese ships may be less favored for US trade, with the gap potentially expanding to 12-15%. Some tanker companies, like Nordic American Tankers and Okeanis Eco Tankers, are less exposed to this risk due to their lack of Chinese-built vessels.

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Panama Expels 125 Sanctioned Ships in Crackdown on Shadow Fleet

The Panama Maritime Authority (PMA), the world’s largest ship registry, is expelling 125 vessels linked to international sanctions, including 107 already deregistered and 18 more in process. This follows an October executive decree allowing faster flag cancellations for ships appearing on U.S., EU, and UK sanctions lists. The crackdown aligns Panama with Western sanctions on Russia’s shadow fleet and reinforces international security and environmental standards. Many deflagged ships have quickly re-registered under African flags. The move comes after similar actions by Barbados and Liberia, signaling a tightening global stance against illicit shipping activities.

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Mediterranean Clean Fuel Rule Disrupts Diesel Prices

A new environmental regulation in the Mediterranean is disrupting diesel prices. The upcoming Mediterranean Emission Control Area rule, set to take effect in May, will lower the sulfur limit for marine fuels from 0.5% to 0.1%. This has led to an unusual price inversion, where the dirtier 0.1% gasoil has become more expensive than the cleaner 10ppm diesel, a trend not seen since 2022. Shippers are expected to shift away from higher-sulfur fuels, increasing demand for 0.1% gasoil. Additionally, rising imports of 0.1% gasoil into North African countries like Libya and Algeria have further tightened the market.

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Petrobras Cuts Diesel Prices Amid Inflation and Currency Gains

Petrobras, Brazil’s state-run oil giant, announced a 4.6% cut in diesel prices to 3.55 reais ($0.62) per liter, marking the first reduction in over a year. Jet fuel prices will also drop by 7.9%, while gasoline prices remain unchanged. The move aligns with President Lula’s fuel pricing strategy, aimed at stabilizing local fuel costs amid global market fluctuations. The decision follows an 8% appreciation of Brazil’s currency and lower global oil prices. Petrobras' diesel prices had been above import parity, reaching 2% higher than global rates before the cut. This reduction could ease inflation pressures, potentially boosting Lula’s declining approval ratings.