Oil & Energy

Date Issued – 12th March 2024

Courtesy of?Steve Alain Lawrence, Chief Investment Officer

Janis Urste, Chief Market Strategist

OPEC's February Oil Output Climbs Despite Prolonged Cuts

OPEC's oil output in February rose by over 200,000 barrels per day (bpd) from January, reaching 26.57 million bpd, despite the ongoing production cuts within the OPEC+ alliance. This increase, as reported in OPEC's Monthly Oil Market Report, was significantly propelled by Libya, which is not subject to OPEC+ cuts due to its political instability, and also saw a notable contribution from Nigeria, historically affected by investment shortfalls and operational disruptions.

Libya notably restarted production at its largest oilfield, Sharara, after a shutdown, leading to a substantial output rise of 144,000 bpd in February, while Nigeria's production went up by 47,000 bpd.

Saudi Arabia, adhering to its commitment, maintained its production at around 8.98 million bpd, continuing a 1-million-bpd reduction from the previous summer. Conversely, Iraq exceeded its production commitment, recording an average of 4.2 million bpd, against a pledged cap of 4 million bpd. This comes as several OPEC+ members, including major producers like Saudi Arabia and Iraq, alongside non-OPEC nations such as Russia, Kazakhstan, and Oman, agreed to extend their production cuts into the second quarter, aiming to stabilize the market.

Sinopec activates production in Major Natural Gas Field

Sinopec has launched a natural gas field in Sichuan, China, with an annual output capacity of 2 billion cubic meters and estimated reserves of 100 billion cubic meters, significantly bolstering China's domestic gas production. This field marks Sinopec's third major discovery in Sichuan, bringing its total regional reserves to nearly 3 trillion cubic meters and its annual production to around 26 billion cubic meters.

Despite challenges in developing shale gas due to complex geography and infrastructure deficits, Sinopec persists in its exploration, recently identifying significant potential reserves. Sichuan's strategic importance to China's shale gas potential is underscored by discoveries like the Qijiang field, with reserves of 146 billion cubic meters, highlighting the region's key role in China's energy development efforts.

Ukrainian Drones fire at Russian Oil Facility

A drone attack early Tuesday targeted a Lukoil refinery in Nizhny Novgorod, western Russia, setting a crude processing unit ablaze, amidst a series of coordinated strikes on Russian energy facilities, believed to be from Ukraine. The Nizhny Novgorod governor confirmed efforts to contain the fire, noting no injuries. Similar attacks hit another facility in the Oryol region, causing a fuel tank to ignite, alongside reports of drone strikes in Moscow and several other regions. Ukraine has not commented on these incidents.?

These attacks have escalated since the start of the year, impacting Russia's refining capabilities, as evidenced by a significant drop in refinery rates following damage from such strikes. This decrease in refining capacity, compounded by necessary maintenance and repairs, is influencing Russia's strategy within the OPEC+ framework, prioritizing production cuts over exports in the upcoming quarter.

Russia Marks Peak in 2024's Seaborne Crude Oil Shipments

Russia's crude oil exports surged to a yearly high of 3.7 million barrels per day (bpd) last week, exceeding its promised export reduction by 420,000 bpd, according to tanker-tracking data. This increase, nearly 600,000 bpd above the previous week, follows the resumption of normal operations at the Far East's Kozmino port after disruptions due to a storm. Even adjusting for volatility with a four-week average, exports rose by 50,000 bpd to 3.36 million bpd, surpassing Russia's OPEC+ commitment by 80,000 bpd.

This spike coincides with Russia, alongside other OPEC+ members like Saudi Arabia, extending their voluntary supply cuts into the next quarter. Russia plans to adjust its strategy by focusing on production cuts, potentially influenced by decreased refining capacity and heightened sanctions, reflecting a strategic shift in its approach to meeting international commitments while navigating operational challenges.

UK Plans Additional Gas Plants for Energy Stability

The UK's Energy Security Secretary, Claire Coutinho, emphasized the necessity for additional gas-fired power plants to mitigate the risk of blackouts as the nation phases out older generators. This recommendation emerges from a government energy review, highlighting the need for dependable generation to complement intermittent wind and solar power, amidst criticism that such moves contradict the UK's net-zero ambitions by 2035.

Despite political differences, with the Conservatives favoring energy supply reliability and Labour focusing on a cost-indifferent energy transition, the practicality of expanding gas-fired capacity is clouded by economic and environmental concerns. High costs associated with carbon permits and developers' reluctance to invest in potentially unprofitable ventures further complicate the situation.

Shell May Decelerate Emissions Reduction Efforts

Shell is reportedly planning to update its climate strategy, potentially slowing its emissions reduction pace, according to Bloomberg sources. The company will detail its revised approach towards achieving net-zero emissions by 2050 in its Energy Transition Strategy report due on Thursday, March 14. Despite previously announcing a decline in oil production post-2019 towards renewable investments, recent energy demand spikes and geopolitical tensions have prompted a reevaluation. CEO Wael Sawan highlighted the energy system's vulnerability to supply shortages, leading to a strategy that balances continued oil and gas investment with selective renewable initiatives. This shift has faced criticism from environmental groups and some investors.

Russian Coal Exports to Asia Decline Due to high Competition

Falling coal prices from Indonesia, South Africa, and Australia are undercutting Russia's coal exports to Asia, its primary market after Western sanctions in 2022. February saw a 21.6% year-over-year decrease in Russian coal shipments to Asia, continuing a six-month decline despite slight month-to-month gains. With the EU and Western allies banning Russian coal post-Ukraine invasion, Russia has pivoted to Asia, with China, South Korea, Turkey, and India becoming key importers.

However, competitive pricing from other major exporters and domestic logistical challenges, such as rail and port congestion, are hampering Russia's coal export capabilities. BIMCO reports a 14% drop in Russian coal shipments early in 2024, exacerbated by logistical issues since October 2023.

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

Explore investment opportunities with our dedicated relationship managers. Schedule a face-to-face and/or video meeting to help you achieve your financial goals. Visit our Website