Oil & Energy

Date Issued – 14th March 2024

Courtesy of?Steve Alain Lawrence, Chief Investment Officer

Janis Urste, Chief Market Strategist

IEA Predicts Tighter Oil Supply Due to OPEC+ Reductions

The International Energy Agency (IEA) forecasts a shift from oil surplus to deficit throughout 2024 if OPEC+ maintains its production cuts. Following the extension of cuts to the second quarter, the IEA anticipates these reductions might continue for the entire year, altering the supply-demand dynamics into a slight deficit. The IEA's March Oil Market Report also revises global oil demand growth upward by 110,000 barrels per day for 2024, citing improved U.S. demand and increased bunker fuel use due to longer shipping routes caused by Red Sea trade disruptions. This update brings the demand growth estimate to 1.3 million bpd for 2024. Despite this adjustment, the IEA's demand growth outlook remains more cautious compared to OPEC's, which projects a robust increase of 2.2 million bpd in 2024 and further growth in 2025.

Brazil Expands Its Renewable Energy Portfolio

Brazil is enhancing its clean energy capacity, integrating solar and wind power to significantly reduce its reliance on hydropower. Solar and wind now form nearly a quarter of Brazil's energy mix, with hydropower's share dropping from 74% in 2018 to 67%. This shift saw solar and wind's contribution leap from 9% to 22% over the same period, marking a milestone last July when they generated over a quarter of the country's electricity. This transition towards renewables has also led to a notable decrease in fossil fuel use, contributing to Brazil's lowest natural gas imports in two decades. The country's strategic diversification of energy sources not only secures a more sustainable energy future but also safeguards against potential energy shortages.

Shell Adjusts Its 2030 Carbon Reduction Goals

Shell has adjusted its 2030 carbon intensity reduction target to 15-20% from 2016 levels, down from a previous goal of a 20% cut. This change reflects a strategic shift toward prioritizing value in the power sector, focusing more on commercial sales. Shell has removed its 2035 interim reduction target due to uncertainties in the energy transition's pace but remains committed to its 2050 net-zero emissions goal. Additionally, Shell aims to reduce emissions from the use of its oil products by 15-20% by 2030 compared to 2021, focusing on the transport sector's decarbonization.

Despite this, Shell plans to continue investing in oil and gas, citing the world's ongoing need for hydrocarbons and the slower expected decline in oil and gas demand relative to the natural depletion rate of fields. This approach has faced criticism from climate activists and some investors.

Concerns Over Europe's EV Charging Infrastructure

Automakers are raising concerns about challenges to the European electric vehicle (EV) market, including insufficient grid expansion and the lack of a unified charging standard. Ford's Martin Sander calls for urgent grid development to support the expected surge in EV adoption by 2035, highlighting the critical need for a robust infrastructure to facilitate the energy transition. Additionally, the absence of a common charging standard, exemplified by Renault's bidirectional charging technology exclusive to its chargers, poses a barrier to widespread EV integration. Renault CEO Luca de Meo advocates for an industry-wide standard similar to the EU's unified phone charger initiative, emphasizing the necessity for significant investment to overcome the limitations of proprietary charging solutions.

Tragedy Strikes Again at Russian Oil Firm Lukoil

In a solemn announcement, Lukoil, one of Russia's premier oil companies, disclosed the unexpected passing of Vice President Vitaly Robertus in his Moscow office, marking the fourth such loss among the firm's senior executives since the onset of the Russian invasion of Ukraine in March 2022. At the age of 54, Robertus' departure was confirmed through a dignified press release on March 13, with Lukoil expressing profound regret but refraining from specifying the cause of death. This latest tragedy follows a series of untimely deaths within Lukoil's executive ranks.

Vattenfall Ends Offshore Wind Hydrogen Initiative

Vattenfall, the Swedish energy company, has halted its pioneering project on offshore hydrogen production from wind farms, initiated near Aberdeen, Scotland, despite early support from the UK government. The project's closure, attributed to industry advancements and Vattenfall's strategic refocusing, nonetheless lays foundational regulatory groundwork for future offshore hydrogen endeavors. This decision mirrors Vattenfall's recent withdrawal from the Norfolk Boreas offshore wind project due to escalating costs, further illustrating the industry's financial challenges. However, the project's potential lives on through RWE's acquisition of Vattenfall's UK offshore wind portfolio, signaling ongoing investment in renewable energy ventures.

Pemex Sets Ambitious Goal for 2050

Pemex, Mexico's state energy giant, is steering towards a greener future with plans to achieve net-zero emissions by 2050, starting with a 30% reduction by 2029. Amidst financial challenges, including being the world's most indebted oil company with debts over $100 billion, this sustainability pivot aims to enhance Pemex's investment appeal and meet creditor demands for environmental responsibility. The initiative emerges in a period of increased emissions from Mexico's energy sector, highlighting the urgency for Pemex to balance production goals with environmental commitments through potential investments in carbon capture and renewable technologies.

China's Construction Downturn Affects Diesel Production

China's construction downturn is forcing independent "teapot" refiners to cut diesel production, amidst a cooling real estate market. Operational rates in Shandong have plummeted to a two-year low, reflecting weak diesel demand across sectors, except logistics where LNG is gaining favor. Caught between high import costs for sanctioned oil and falling domestic diesel prices, China's private refiners are seeing their margins halved, despite a previous year of record crude imports and production. This shift underscores the broader challenges facing China's refining sector, which must navigate a changing economic and energy landscape.

Brent Crude Climbs Above $85 Following IEA's Market Update

Crude oil prices soared to a four-month peak on Thursday, with the U.S. benchmark surpassing $80 and Brent crude exceeding $85 per barrel. This surge is attributed to revised supply and demand forecasts by OPEC+ and the International Energy Agency (IEA), which now present a more unified outlook. Brent crude reached $85.23, up by 1.43%, and West Texas Intermediate (WTI) climbed to $81.13, marking a 1.77% increase. The adjustment in forecasts by the IEA points to a tighter market and increased demand, spurred notably by disruptions from Houthi attacks on Red Sea shipping lanes.

With the IEA revising its oil demand growth projections upward four times since November, mainly due to potential Red Sea disruptions and despite a global economic slowdown, the agency's stance is drawing closer to OPEC+'s perspective. This alignment comes after years of differing views on oil demand and the necessity for new exploration. The IEA has now reduced its 2024 supply outlook to 102.9 million barrels per day, anticipating that OPEC+ will extend its voluntary production cuts through 2024. This shift, coupled with robust refining margins driven by high demand and tightening supplies, especially for fuel, underscores a bullish sentiment for the oil market.

Australia accelerates Green Energy Initiatives

Victoria, Australia, is enhancing the efficiency of renewable energy project approvals through the Development Facilitation Program (DFP), as announced by Premier Jacinta Allan. This initiative will simplify the approval process, treating these projects as key economic developments to speed up their launch. Aimed at overcoming previous delays and streamlining procedures, the move is set to unlock US$59.4 billion in renewable investments, potentially creating 15,000 jobs. This reform supports Victoria's shift towards a more sustainable and coal-free energy future, a step that has garnered support from the Clean Energy Council for its potential to meet modern energy demands while reducing emissions.

[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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