Oil & Energy

Date Issued – 24th April 2024

Courtesy of?Steve Alain Lawrence, Chief Investment Officer

Janis Urste, Chief Market Strategist

Central Asian economies face uncertainty?

The World Bank projects that China's tepid economic recovery will negatively influence economies across the Caucasus and Central Asia through 2024-25. The broader region faces economic challenges, including subdued commodity prices and geopolitical tensions, which may further inhibit investment growth amid slow structural reforms.

In the Caucasus, while Azerbaijan expects modest growth from rising European energy demand, Armenia and Georgia are experiencing slowdowns due to geopolitical risks and reduced export activities. As Georgia approaches parliamentary elections, economic challenges could spotlight the current administration's policies, potentially affecting its EU membership aspirations.

In Central Asia, the economic outlook varies with significant growth declines anticipated for Kyrgyzstan and Tajikistan, while Kazakhstan and Uzbekistan may see slight improvements. The region's economic stability is heavily influenced by Russia's economic health, impacting labor migration and income sources for families in Kyrgyzstan and Tajikistan. Additional regional concerns include rising food costs and climate change impacts.

The report notes China's economic instability, which continues to send mixed signals globally.?

Despite attempts to stabilize the economy through state interventions, underlying structural issues remain unaddressed. Central Asian countries are particularly watchful of Beijing's economic health as they seek to diversify their economic dependencies through initiatives like the Middle Corridor trade route, aiming to reduce reliance on the Chinese and Russian economies.

OPEC is open to embracing Namibia?

OPEC Secretary General Haitham Al Ghais recently highlighted Namibia's potential as an emerging oil frontier during an international energy conference, noting the anticipated production of 2.6 billion barrels by 2030. "We are excited about the partnership opportunities and ready to support Namibia," stated Al Ghais, encouraging investor interest in the country's oil sector.

This endorsement comes as Namibia may join OPEC, helping to fill the void left by Angola's recent exit. According to Rystad Energy, Namibia could reach a peak production of 700,000 barrels per day by the next decade.

This positions Namibia alongside significant global oil producers like Guyana, promising substantial economic and strategic benefits.

Automobile Sector Faces Challenges

According to a Bloomberg report, the U.S. vehicle market is experiencing a decline in sales due to increasing prices and higher interest rates on car loans, now averaging 10%. The soaring costs have pushed the average vehicle price to approximately $48,000, resulting in a sales drop to a Seasonally Adjusted Annual Rate (SAAR) of 15.4 million vehicles at the end of 2023, slightly down from 15.5 million in the preceding quarters.

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Jonathan Smoke, chief economist at Cox Automotive, noted a significant shift in the demographic of new car buyers, with purchases becoming almost exclusive to the top 20% of income earners. This change has culled the consumer base by about 10%, setting what he terms "the new norm for the industry" at closer to 16 million in annual sales, due to reduced affordability.

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Looking ahead, Cox Automotive forecasts a modest increase in auto sales of less than 2% for 2024, indicating that the market is unlikely to reach the pre-pandemic annual sales peak of 17 million soon. Despite the slowdown, automakers are maintaining higher prices to capitalize on greater profit margins per vehicle. In 2023, consumer spending on new vehicles hit a record $578 billion, marking the third consecutive year it has surpassed half a trillion dollars. The average monthly car payment rose to $739, up from the previous year.

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Smoke warns that unless the industry adjusts to more affordable pricing, the market will continue to cater predominantly to higher-income, higher credit-quality consumers, thereby limiting overall sales volumes.

Fossil Fuel Contribution to UK Electricity?

Fossil fuels recorded a historic low in UK electricity generation, contributing just 2.4% during a notable hour on April 15th, according to Carbon Tracker. Last year, instances when fossil fuels constituted less than five percent of electricity jumped significantly, highlighting a decisive shift from previous years. Craig Dyke of the National Grid's ESO underscored the challenge of the 2025 fossil reduction target but remained optimistic about reaching this ambitious goal.

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Currently, wind and nuclear sources dominate, producing 45% of the UK’s electricity in recent weeks. As the country progresses in phasing out coal, with the last plant closing by September, the energy mix is evolving: renewables lead with 38%, followed by fossil fuels at 32%. However, reliance on gas spikes during low renewable output, drawing criticism over new gas-fired stations, which some see as concessions to the gas lobby, potentially hindering the UK's net-zero ambitions.

Revenue from Russian Oil and Gas Set to Double in April

According to Reuters, based on data from industry sources and official statistics, Russia's oil and gas revenue is poised to double this April to $14 billion, up from $7 billion in the same month last year. This increase, slightly below March's $14.15 billion, marks a significant recovery, despite last year's revenue falling 23.9% due to lower oil prices and diminished gas exports. Looking ahead, 2024 is projected to see a 30% rise in oil and gas revenues compared to 2023.

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This robust financial performance highlights the challenges Western countries face in their efforts to limit funding that could support Russia's military actions in Ukraine. Despite sanctions, Russian oil continues to find markets in China and India, and its LNG, not currently sanctioned by the EU or the U.S., is still entering European ports, which have increased imports of Russian LNG over the past two years. Additionally, recent reports indicate that Russia's oil exports surged to an 11-month high in mid-April, fueled by increased shipments from refineries damaged in Ukrainian drone strikes.

[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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