Oil

Oil Hits 7-Week High On Strong Demand In China

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In less than two weeks, the EU’s embargo on oil product imports from Russia is set to kick in, and despite a declining trend, Russian diesel deliveries to the EU are still some 450,000 b/d strong.

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A diesel price spike seems almost inevitable as middle distillate inventories in OECD Europe remain some 30 million barrels below the 5-year average and US diesel production is hamstrung by idled refining capacity.

This is happening just as Europe is bracing for the impact of the diesel ban, strikes began at three French refineries, curtailing supply of middle distillates and gasoline in the country at the worst possible time.

Europe’s key diesel futures, the front-month ICE gasoil contract, surpassed the $1,000 per metric tonne mark for the first time since November 2022, indicating that the diesel squeeze is on.

The start of the Lunar New Year in China has at last slashed the amount of news dealing with the Asian powerhouse’s 2023 demand increases and brought the United States back into the limelight. Torn between the urge to replenish SPRs and push WTI below $80 per barrel again, the weakness of US refining coupled with maintenance-heavy weeks ahead could become that rotten apple which spoils the barrel.

US top officials said President Joe Biden would veto a Republican-sponsored bill that seeks to limit the president’s authority to tap into national strategic petroleum stocks, provided the bill passes the Congress.

U.S. Treasury Secretary Janet Yellen said the Price Cap coalition is working to come up with caps on Russian petroleum products, assumed to kick in on February 5, but the markets “are complicated and there’s a chance things would not go to plan”.

Portfolio investors have added positions in the oil and product futures and options markets at the fastest rate in more than two years, purchasing an equivalent of 89 million barrels (most of it crude) in the week ending January 17.

Russian crude oil loadings from Baltic ports are set to increase by 50% compared to December to 1.7 million b/d, brushing aside fears of the oil price cap denting production, as the majority of cargoes is heading to India.

Amidst ceaseless parliamentary protests demanding that the government buy back consumer loans and raise salaries from its oil wealth, the entire government of Kuwait (appointed by the ruling family, as opposed to the elected assembly) resigned this week.

Colombia’s government announced it will not issue new oil and gas exploration contracts (currently the Latin American country has 381 active projects) and that Bogota will instead direct investments into tourism and renewable energy sources.

Activists from the Extinction Rebellion movement rallied outside the headquarters of French bank BNP Paribas (EPA:BNP) after it provided financing for the $3.5 billion TotalEnergies-developed (NYSE:TTE) East African Crude Oil Pipeline, connecting Uganda to the Tanzanian coast.

The woes of two leading offshore wind companies, Orsted’s (CPH:ORSTED) writedown of a huge US project and Siemens Gamesa’s $0.5 billion impact hit due to faulty turbine components, highlight the headwinds for wind energy in times of cost inflation and higher financing costs.

The latest EIA Short-Term Energy Outlook predicts that in 2023 Permian would still represent 80% of the US’ crude production growth of 540,000 b/d, however the shale superbasin’s annual increment is expected to shrink to 270,000 b/d in 2024.

After years of negotiations, a Chinese consortium comprising battery giant CATL (SHE:300750) and mining major CMOC (SHA:603993) signed a deal with Bolivia to develop the world’s purest and largest reserves of lithium in the Salar de Uyuni.

The OPEC Fund for International Development has raised $1 billion by selling its first ever bond last week, with the 3-year bond paying investors 4.5% as the raised money will be going towards sustainable projects in food security or renewable energy.

According to the China Electricity Council, the Asian powerhouse will add 70 GW of coal-fired power generation capacity this year, almost double of the 40 GW seen in 2022, with only solar seeing higher capacity increases (100 GW).

The government of Portugal is preparing to start its first-ever offshore wind power auction by Q4 2023, seeking to secure 10 GW of installed capacity by 2030, boosting its already high renewable generation ratio of 60% to almost 90% by the end of the decade.