Oil & Energy

Date Issued – 25th April 2024

Courtesy of?Steve Alain Lawrence, Chief Investment Officer

Janis Urste, Chief Market Strategist

Anglo-American's share price rose amid potential acquisition talks with BHP.

The mining industry buzzes with news of BHP's potential acquisition of Anglo American, boosting BHP’s position as a global leader in copper. Despite a rough year, Anglo's shares surged over 12% after the announcement, recovering from previous losses. This deal would enhance BHP's copper operations in South America and necessitates the divestment of Anglo’s struggling South African units.

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This strategic move could significantly alter the composition of the UK's FTSE 100 by potentially reducing the number of major diversified miners to just Rio Tinto and Glencore, heightening concerns about a shift away from the London Stock Exchange. The transaction, still under negotiation, could spark further industry consolidation if other mining giants enter the bidding, potentially leading to a competitive takeover scenario

Aluminum Prices Nearing 2023 Record Levels

The Aluminum Monthly Metals Index (MMI) saw a modest increase of 2.03% from March to April, as aluminum prices reached new highs in early April, surpassing $2,400 per metric ton. This marked the highest level since February 2023, challenging the January 18 peak of $2,662. This upward trend coincided with bullish sentiment in the market and an influx of investment funds into aluminum, pushing net long positions to significant levels not seen since early 2023.

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Meanwhile, severe drought conditions in China’s Yunnan Province temporarily reduced the country’s primary aluminum output to a yearly low in February. This disruption is expected to lessen with the end of the dry season, potentially stabilizing prices before they surpass the 2023 peak.

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Globally, aluminum premiums have risen sharply, reflecting robust demand, particularly in the U.S. and Europe, where premiums surged by 17% and 14% respectively in March. Japan also saw a significant 61% quarterly increase due to heightened demand from China and South Korea. However, as Chinese production resumes, the spike in premiums and price may stabilize, influenced by the broader economic pressures, including persistent inflation, which could impact central bank policies

EU Set to Strengthen Curbs on Russian LNG Imports

The European Commission is preparing to unveil new sanctions against Russian liquefied natural gas (LNG) imports, marking a significant shift in Europe’s energy strategy. These sanctions will likely include a complete ban on EU shipments and target three key Russian LNG projects: Arctic LNG 2, Ust Luga, and Murmansk. This move reflects Europe’s intensified efforts to decrease its reliance on Russian energy, exacerbated by the ongoing conflict in Ukraine.

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Despite previous hesitations, the escalating imports of Russian LNG, which now account for approximately 15% of the EU's gas supply, have pressured Brussels into action. The proposed measures also aim to halt the re-exportation of Russian LNG from major entry points like Belgium, France, and Spain to outside markets such as China.

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This strategic pivot, driven by mounting geopolitical tensions, signals a robust EU stance against Moscow's actions in Ukraine and addresses internal concerns over energy dependence. Although some EU nations dependent on Russian energy may resist, the broader consensus indicates a significant impending transformation in Europe’s energy landscape.

Conflicts Risk Disrupting West Africa's Oil Supply.

Amid increasing concerns from African and Western officials, the growing instability from coups and conflicts in the Sahel poses a threat to the oil-rich coastal regions of West Africa. Nations like Cote d'Ivoire, Ghana, Benin, and Togo, crucial to the region's energy production and export, face potential spillovers of unrest, endangering significant oil projects.

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Recent escalations, such as the coups in Burkina Faso, Mali, and Niger, and the rising activities of Islamist insurgents, threaten to extend disturbances to these coastal states. This turbulence not only jeopardizes local governance but also international security and economic interests, particularly the oil sector crucial for the region's prosperity.

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Countries like Cote d'Ivoire and Ghana are actively developing substantial offshore oil fields, which are central to their economic stability but could be at risk if regional instability continues. In response, international efforts, led by the U.S. and EU, are intensifying support to bolster military capabilities and border security in the Gulf of Guinea, aiming to protect these vital energy infrastructures and maintain regional stability.

$2-Trillion Investment Deficit Imperils Energy Transition

BlackRock has sounded the alarm on a significant funding shortfall threatening the global energy transition. In their latest report, they highlight that annual investments need to surge from the current $1.8 trillion to approximately $4 trillion to effectively move away from hydrocarbons. This financial leap demands greater collaboration between governments, corporations, and communities, according to BlackRock's Michael Dennis.

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However, the investment landscape is growing bleaker. Rising interest rates have shifted investor focus back to oil and gas, sectors seen as safer bets amid recent global uncertainties like the pandemic and geopolitical tensions. This shift is evidenced by a renewed investor interest in traditional energy stocks, driven by inflation concerns and the lure of higher oil prices.

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The daunting task of closing the $2-trillion annual investment gap is further complicated by the need for substantial private sector funding, especially in the developing world. While government initiatives like favorable energy policies and market deregulation could help mobilize these funds, such measures are politically sensitive in regions with high poverty, where they can lead to higher costs for consumers.

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With transition industries struggling under persistent high rates and many companies folding or relocating for better support, the energy transition's financial goals are becoming increasingly challenging to meet. The question of whether these investment needs can be met remains open amidst the complex and risky landscape of global markets.

[Disclaimer: This article provides financial insights & developments for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.]

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