Oil & Energy

Date Issued – 17th April 2024

Courtesy of?Steve Alain Lawrence, Chief Investment Officer

Janis Urste, Chief Market Strategist

New Sanctions on Iran Under Consideration by EU and U.S.

The European Union and the United States are poised to implement additional sanctions on Iran to prevent further escalation following Iran's recent missile attack on Israel. These forthcoming measures, as announced by EU's Josep Borrell and U.S. Treasury Secretary Janet Yellen, aim to notably restrict Iran's oil exports and target its missile and drone programs. With the anticipated cooperation from global allies, these sanctions seek to significantly limit Iran's military effectiveness and address its problematic behaviors.

Asian LNG Prices Surge Amid Middle East Conflict Concerns

Spot LNG prices in Asia have reached their highest level since early January, spiking over concerns that the Middle East conflict might escalate and disrupt LNG cargo flows through the Strait of Hormuz, a crucial route for 20% of the world's LNG trade. Prices surged to more than $11 per million British thermal units (MMBtu), reflecting a 40% increase since the end of February.

In Europe, natural gas prices also rose significantly, with Dutch TTF futures reaching their peak for the year, amid fears of potential LNG supply disruptions. Europe's dependency on LNG has grown following the reduction in Russian pipeline gas and the sabotage of the Nord Stream pipelines. Despite a bearish outlook due to high gas storage levels, ongoing geopolitical tensions and supply issues from Norway are expected to support elevated gas prices in the region.

Concerns Over Gas Prices May Limit Biden's Iran Sanctions

Amid the recent attacks on Israel, the Biden Administration is unlikely to significantly tighten sanctions on Iranian oil exports, primarily due to concerns about rising oil prices in an election year and the potential strain on U.S.-China relations, given that China is a major purchaser of Iranian oil. Despite the U.S. House of Representatives passing the Iran-China Energy Sanctions Act, which aims to expand sanctions to Chinese financial institutions involved with Iranian petroleum, analysts predict that enforcement may remain moderate to avoid global oil market disruptions.?

Experts suggest that while the U.S. may impose some economic measures against Iran, completely cutting off Iranian oil exports is improbable due to the complex geopolitical and economic landscape.

Oil Prices Climb as China’s Economic Growth Exceeds Forecasts

China's first-quarter GDP growth exceeded expectations, rising 5.3% against a forecasted 4.6%, bolstering oil prices due to China's status as a major global oil consumer. Despite strong GDP figures, other indicators like retail sales and industrial output show that domestic demand is weaker than expected, with growth rates decelerating in March. Nonetheless, China's influence on global oil markets remains substantial, supported by seasonal boosts such as the Lunar New Year.

However, future oil demand growth in China may slow due to increasing adoption of electric vehicles and high-speed rail, with projections showing a decline from 500,000 barrels per day (bpd) in 2023 to 300,000 bpd by 2025. Amidst these trends, China National Petroleum Corporation (CNPC) recently secured a $400 million deal to import oil from Niger, suggesting sustained oil demand and a strategy to bolster its oil supply chain. This deal aims to increase Nigeria's oil production fivefold, positioning it as an emerging significant oil exporter.

Decline in Germany’s Oil and Gas Production Continues

In 2023, Germany's domestic oil and gas production declined by 5.9% and 10.4% respectively, increasing its reliance on imported, higher-emission LNG. BVEG's Managing Director, Ludwig M?hring, advocates for boosting local production, which could lower emissions by 30% compared to LNG imports and enhance energy security. Amidst ongoing challenges in securing stable energy supplies due to geopolitical disruptions, notably the cut-off of Russian gas, Germany's dependence on imports grew. Norway, the Netherlands, and Belgium were top suppliers last year, but the energy crisis continues to impact the competitiveness of Germany's industry, with significant recovery doubts expressed by RWE's CEO.

Indian Refiner Looks to Resell U.S. Crude Amid Increase in Russian Oil

Reliance Industries, India's largest private refiner, is reportedly looking to resell U.S. WTI Midland crude just weeks after purchasing it, amidst signs that Russian crude imports to India may be increasing. According to Bloomberg sources, this resale attempt aligns with heightened purchases of oil similar to Russia’s Sokol grade, due to recent sanctions impacting transactions with Russia’s state tanker fleet, Sovcomflot. Reliance had also attempted to sell Murban crude from the UAE.

Despite stringent U.S. sanctions on Russian oil, there are indications that Sokol crude shipments are resuming towards India, facilitated by discounted offers, suggesting a potential revival of Russian crude trade with India.

Nigeria Increases Oil Reserves by 1 Billion Barrels

Nigeria's crude oil reserves increased by 1 billion barrels, and natural gas reserves grew by 2.573 trillion cubic feet, positioning it as Africa's leading natural gas holder and second in crude oil reserves after Libya. As reported by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), as of early 2024, the country holds 37.50 billion barrels of crude oil and 209.26 trillion cubic feet of natural gas. These reserves, which could last 68 years for oil and nearly 98 for gas, underscore Nigeria's significant role in the global energy market, influencing national energy policies and economic strategies.

Efforts to expand these reserves include exploratory operations aiming to reach 50 billion barrels of proven crude reserves. Despite past challenges such as oil theft and pipeline vandalism, Nigeria has seen a notable recovery in oil production, reaching its highest level in over three years by February 2024, due to improved security measures.

Hybrids Outsell EVs in Australia

Hybrid vehicle sales are consistently outperforming electric vehicle (EV) sales, with 95,129 hybrids sold compared to 69,593 EVs in the last three quarters, according to the latest EV Index. While hybrids now represent 11.95% of the market share, EVs account for 8.7%, despite a significant decline in internal combustion engine vehicle sales. This trend is attributed to consumer concerns over EV costs and insufficient charging infrastructure.

Reflecting a broader trend, major automakers like Ford and GM are adjusting their strategies, delaying certain EV launches to expand their hybrid offerings in response to market demand and technological developments.

U.S. Establishes Task Force to Address Global Carbon Leakage

The U.S. government is launching a Climate and Trade Task Force, led by the incoming U.S. climate envoy John Podesta, to tackle global carbon emissions from trade and manufacturing. Announced at Columbia University, the task force aims to make international trade systems more climate-friendly by addressing carbon leakage—where production moves to countries with looser emissions standards—and carbon dumping, which involves exporting goods from countries with lax regulations to those with stricter ones.

Podesta highlighted the environmental impact using China's aluminum production as an example, which produces significantly more emissions than the U.S. The task force will work with global trade partners to standardize measurements of emissions and use this data to shape new climate policies.

[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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