David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Russia Sends More Oil by Sea, But Kremlin's War Chest Pressured

    This article for Bloomberg may be of interest to subscribers. Here is a section: 

    The European Union’s import ban on Russia crude has led to much longer voyages for shipments, with journeys now taking an average of 31 days from Baltic ports to India, compared with just seven days from the same terminals to Rotterdam and about half that to Poland. That’s putting more pressure on the dwindling fleet of ships whose owners are willing to haul Russian cargoes. A similar pattern is expected to emerge in Russia’s refined products trade.

    The country is increasingly reliant on its own tankers and a so-called “ shadow fleet” of usually older ships owned by small, often unknown companies that have sprung up in recent months. European-owned vessels can still carry Russian crude, as long as it is sold at a price below a $60-a-barrel cap, introduced at the same time as the import ban. The level of that cap is due to be reviewed in March. 

    There has also been a resurgence in ship-to-ship transfers of cargoes in the Mediterranean, with loads either being combined onto larger vessels or shifted from ice-class tankers to others in order to free up those ships needed for operations in the Baltic in the winter months.

    Tankers hauling Russian crude are becoming more cagey about their final destinations. Vessels carrying more than 41 million barrels of Russian crude, the equivalent of 1.45 million barrels a day of exports, left port showing no clear final destination in the four weeks to Feb. 3.

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    Shell Isn't Looking for Big Deals as Debt Shrinks, Profits Soar

    This article from Bloomberg may be of interest to subscribers. Here it is in full: 

    Shell Plc isn’t planning to use its growing cash pile to pursue big acquisitions, aiming instead to deliver greater value for shareholders. 

    That was the message delivered by new Chief Executive Officer Wael Sawan and Chief Financial Officer Sinead Gorman at a meeting with analysts on Friday morning, following their announcement the day before of record profits of nearly $40 billion in 2022 and the lowest level of indebtedness since 2015.

    The company’s management is trying to boost Shell’s value, which has lagged American peers that stuck more closely to their fossil-fuel core instead of diversifying into cleaner energy.

    Shell’s shrinking debt could give investors “some nervousness around the potential for large-scale M&A,” Biraj Borkhataria, an analyst at RBC Capital Markets, wrote in a note on Friday about the meeting earlier in the day. “Wael clearly stated this was not on the agenda, with focus more on performance of the asset base and driving higher returns.”

    Shell said at the meeting that big acquisitions of around $10 billion are unlikely in low-carbon energy because there aren’t good opportunities, according to analysts at Barclays Plc led by Lydia Rainforth. 

    There could be smaller-scale investments in that area, particularly in hydrogen. Last year Shell spent $2 billion to buy Danish company Nature Energy Biogas A/S and reached final investment decision on Europe’s largest green hydrogen production site.

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    Oil's Pipe Dream

    This article for Javier Blas for Bloomberg may be of interest. Here it is full: 

    For years, energy experts modeling the impact of 2050 net zero targets on oil demand had the advantage that the deadline, and the incremental steps to getting there, were a long way off. If time proved their scenarios wrong, they’d be long forgotten anyway. 

    But now, those first intermediate waymarks are around the corner, and they look increasingly farfetched.

    Earlier this week, BP Plc published its annual Energy Outlook, presenting three scenarios — not forecasts — for how oil demand may evolve. The Net Zero path, broadly in line with the goals of the Paris Agreement, is difficult to reconcile with current trends.

    In such a narrative, BP’s model shows global oil consumption collapsing to 21 million barrels a day by midcentury, down from about 98 million today.

    Ignore 2050 and focus instead on the intervening milestones, starting with 2025. In just two years’ time, BP’s Net Zero scenario sees oil demand 4 million barrels a day lower than it is now. That would mean removing the equivalent of Germany’s entire consumption in 2024 and repeating that feat again the following year. 

    Every oil forecast I’ve seen shows demand rising in 2023, and the few 2024 projections already published — including one from the US government — see growth continuing.

    Looking further ahead, BP’s Net Zero readout suggests demand would need to plunge a further 9 million barrels a day from 2026 to 2030, falling to 85 million a day by the end of the decade. That equates to eliminating the consumption of France each year and, on the final year, striking out Italy as well.

    Then the really difficult period starts. The scenario sees the world using just 70 million barrels a day in 2035, requiring the annual removal of 3 million a day. That equals the demand of Japan, currently the world’s fourth-largest consumer.

    Net zero models look increasingly at odds with short-term trends. It’s possible oil demand can sink by 2050, but is it going to plummet in a matter of months and keep falling precipitously every year for the next decade? No.

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    Made-in-China Cars Are Primed to Conquer the Global Market

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    “To fight the Chinese, we will have to have comparable cost structures,” Stellantis NV CEO Carlos Tavares said on Dec. 19, speaking to reporters at a powertrain plant in Tremery in northern France. “Alternatively, Europe will have to decide to close its borders at least partially to Chinese rivals. If Europe doesn’t want to put itself in this position, we need to work harder on the competitiveness of what we do.”

    And

    The growth in the supply chain in China has also kept pace with car manufacturing. Domestic companies now make almost all parts, including those they used to import until about a decade ago, such as high-strength steel and reinforced fiberglass. As a result, China ran a trade surplus in vehicles and vehicle parts for the first time in 2021. The assembly lines still depend on advanced machines from Japan and Germany, though.

    “There seems to have been a step change,” Dyer says. “The long-term trend is for increasing sales of Chinese brands around the world.”

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    The Future of Uncertainty

    Thanks to a subscriber for this transcript of 3rd Atal Bihari Vajpayee Memorial Lecture delivered by Ambassador Bilahari Kausikan of Singapore in New Delhi yesterday. Here is a section: 

    First, no country can avoid engaging with both the US and China. Dealing with both simultaneously is a necessary condition for dealing effectively with either. Without the US there can be no balance to China anywhere; without engagement with China, the US may well take us for granted. The latter possibility may be less in the case of a big country like India, but it is not non-existent.

    Second, I know of no country that is without concerns about some aspect or another of both American and Chinese behaviour. The concerns are not the same, nor are they held with equal intensity, and they are not always articulated – indeed, they are often publicly denied -- but they exist even in the closest of American allies and in states deeply dependent on China.

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    Giant Fund Buys Up Tesla and Plug Power Stock, Sells GM

    This article from Barron’s may be of interest to subscribers. Here is a section: 

    DNB Asset Management materially increased investments in EV maker Tesla (ticker: TSLA) and Plug Power (PLUG), a hydrogen fuel-cell technology company, while slashing its stake in General Motors (GM) in the fourth quarter. The unit of Norway's largest financial-services firm, DNB, disclosed the stock trades, among others, in a form it filed with the Securities and Exchange Commission.

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    Chevron-Booked Ship Laden With Venezuelan Crude Sails to US

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    The Aframax Sealeo is on its way to the US after receiving Venezuelan crude in a ship transfer off Aruba, according to ship-tracking data compiled by Bloomberg. 

    Sealeo received Hamaca crude oil from tanker Caribbean Voyager in a ship-to-ship transfer ~Monday

    Caribbean Voyager loaded ~500k bbl Hamaca ~Jan. 6 at the Venezuelan government-controlled port of Jose

    Sealeo signals Pascagoula, Mississippi, as destination; Pascagoula is the site of the Chevron Pascagoula refinery, a facility designed to process heavy sulfurous oil like the types produced by Venezuela

    Cargo is first to sail to US after the country eased sanctions against Venezuela in November

    Last time US received Venezuelan crude was in May 2019 when Motiva Port Arthur refinery in Texas took ~350k bbl of Diluted Crude Oil: AHOY data compiled by Bloomberg

    Other Chevron tankers sailing to/from Venezuela:

    Kerala, which loaded 250k-300k bbl Boscan crude for Chevron, is currently anchored off Lake Maracaibo awaiting orders

    UACC Eagle, which is bringing ~620.4k bbl of US heavy naphtha to Venezuela, is currently moored at the port of Jose to discharge.

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    Russia to Try to Limit Oil Discounts With Market Principles

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    The Urals grade, by far the country’s top export stream, was $37.80 a barrel at the Baltic Sea port of Primorsk on Friday, according to data provided by Argus Media. That was less than half where Brent futures settled on the same day.

    The ballooning discount follows the European ban on almost all seaborne crude imports from Russia that imposed from Dec. 5. Simultaneously, the European Union joined with the G-7 industrialized nations in imposing a cap on the price of Russian supply. Anyone wishing access to Western services — in particular industry standard insurance, but also an array of other things — could only do so if they paid $60 of less.

    The western price cap is “illegal” and will affect stability of the global energy supply, requiring “significant cooperative effort by responsible countries to remedy,” the ministry said, reiterating earlier statements by President Vladimir Putin and top Russian energy officials.

    Russia is prepared to cut its crude production by 500,000-700,000 barrels a day in response to the threshold, Deputy Prime Minister Alexander Novak said last month. 

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    Oil's New Year Slump Deepens Below $75 as China Concerns Grow

    This article for Bloomberg may be of interest. Here is a section:

    Crude’s dwindling levels of open interest have left it open to sharp swings in recent months, and a failed attempt to break above its 50-day moving average this week has done little to improve the technical picture. While sanctions against Moscow over Russia’s war in Ukraine dragged its oil flows to 2022 lows late last month, that’s been of little relief to bulls so far this year. 

    The impact of a pre-Christmas freeze that hobbled refinery capacity in some parts of the US should also become clearer in inventory data this week, with the industry-funded American Petroleum Institute’s figures due later. In the short-term, that has lowered crude processing capacity in North America and is also weighing on prices. 

    “We’ve seen these big freeze-offs in the US and that has meant that the crude balance has actually weakened,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said in a Bloomberg TV interview, referring to US refinery closures due to cold weather. “There’s a few more weeks of softness I would think.”

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