Oil & Energy

Date Issued – 7th March 2024

Courtesy of?Steve Alain Lawrence, Chief Investment Officer

Janis Urste, Chief Market Strategist

Tesla's German Production Halt Due to Security Incident

A recent attack on the German power grid, aimed at disrupting Tesla's Gigafactory near Berlin, raises questions about the motives behind it—whether it's environmental activism or a move against Elon Musk's interests. The incident halted Model Y production, impacting Tesla's quarterly vehicle delivery forecasts, with potential delivery shortfalls and financial implications. Analyst Ben Kallo of Baird Equity Research suggests adjusting delivery expectations down due to this and other production challenges. Moreover, Tesla's market value and Musk's personal wealth have suffered, with Tesla shares dropping significantly, affecting Musk's status as the world's richest person.

UK's Windfall Tax on Oil Profits Extended Through 2029

In his Spring Budget 2024 speech, UK Chancellor Jeremy Hunt announced the extension of the windfall tax on oil and gas operators in the North Sea to March 2029, in response to sustained high energy prices. Initially set at 25% in May 2022 and later increased to 35%, the Energy Profits Levy aims to capture extraordinary sector profits, now totaling a 75% tax burden, the highest for any sector in the UK. While the extension is expected to raise ￡1.5 billion, it includes a provision for early abolition if market prices revert to historical norms, underscoring a commitment to balancing revenue generation with investment in energy security. However, the industry has voiced concerns, with significant reductions in investments and delays in drilling plans, indicating widespread impacts on future projects and energy development.

TotalEnergies and QatarEnergy Broaden Oil Exploration to South Africa

TotalEnergies and QatarEnergy are expanding their oil and gas exploration in the Orange Basin by acquiring a license in South African waters, following their success in Namibia. They will acquire stakes in Block 3B/4B, with TotalEnergies holding 33% and assuming operatorship, and QatarEnergy holding 24%. This venture is part of their broader strategy to explore emerging hydrocarbon frontiers in Africa, building on significant discoveries like the Venus prospect in Namibia. Block 3B/4B, covering over 17,500 square kilometers off South Africa's western coast, underscores their commitment to assessing the basin's potential alongside their partners and South African authorities.

U.S. EV Charging Stations Reach Profitability

Utilization rates at U.S. electric vehicle (EV) charging stations, particularly Level 3 (DCFC) chargers, have significantly increased, turning them profitable in 19 states, as reported by Stable Auto Corporation. This surge in utilization, which saw a 104% jump from 8.8% in January to 18% in December 2023, has been driven by the introduction of EVs with higher ranges and faster charging capabilities.

The rising demand for EV charging is now outpacing EV sales, highlighting the need for more infrastructure to address consumer concerns about range and convenience. Despite the profitability of fast-charging stations, the U.S. still lags behind in charging infrastructure, with only 22 EV charging ports per 1,000 road miles compared to 104 gas pumps, underscoring the gap that needs to be filled to support the growing EV market.

Iran Initiates Offloading of $50 Million Crude from Seized Tanker

Iran is poised to offload crude oil valued at approximately $50 million from a tanker chartered by Chevron, seized last year in the Arab Gulf, signaling a retaliatory move amidst ongoing tensions with the United States. This development follows the capture of the Marshall Islands-flagged tanker Advantage Sweet, under Chevron's commission for a voyage from Kuwait to Houston, by Iran's Navy in May 2023 while it navigated the Gulf of Oman.

The tanker, owned and operated by Turkey, has been under U.S. Navy demand for release, citing its seizure in international waters. This incident is part of a series of tit-for-tat actions between Iran and the U.S., including Iran's seizure of another vessel in retribution for the U.S. confiscation of 1 million barrels of Iranian oil. These maritime confrontations underscore the escalating sanctions dispute and geopolitical frictions in the region, impacting the transportation and legality of crude oil across international waters.

Italy Advances Towards Coal Elimination in Power by 2025

Italy is set to eliminate coal in electricity generation by the end of 2025, transitioning to gas-fired power plants, as part of its updated National Climate and Energy Plan. This decision, excluding Sardinia until 2026-2028, aligns with the EU's endorsement of natural gas as a transitional energy source towards achieving climate neutrality by 2050. Italy has already reduced its dependency on Russian gas to 4%, turning to Algerian gas and LNG imports from Qatar and the U.S. Additionally, Italy plans to bolster its energy capacity with four new gas-fired plants and upgrades to existing ones, contributing an additional 3,400 megawatts by 2026. This move represents Italy's strategic shift towards more sustainable energy sources while maintaining energy security and supporting the EU's climate goals.

WTI Crude Oil Rises 3% Amid Supply Constraints

U.S. benchmark crude oil prices rebounded with a 3% increase on Wednesday amid concerns of tight supply and after the Federal Reserve signaled potential interest rate cuts in 2024. West Texas Intermediate (WTI) crossed the $80 mark, while Brent crude approached $84. This surge followed Saudi Arabia's announcement to hike crude prices to Asia and the extension of OPEC+'s 2.2-million-barrel-per-day output cuts into the second quarter.

These moves, alongside Fed Chairman Jerome Powell's remarks to Congress on anticipated rate cuts, and geopolitical tensions in the Middle East, have contributed to the rising oil prices. Additionally, a smaller-than-expected inventory increase reported by the API and upcoming maintenance shutdowns in U.S. refineries, indicating a short-term supply constraint, further supported the price uptick.

[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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