Oil & Energy

Date Issued – 3rd April 2024

Courtesy of?Steve Alain Lawrence, Chief Investment Officer

Janis Urste, Chief Market Strategist

Reuters Survey finds OPEC Reduces Output

In March, OPEC's oil output dropped due to reduced exports from Iraq and Nigeria and ongoing supply cuts, with production averaging 26.42 million barrels daily, slightly down from February. This is in line with OPEC+'s decision to continue their voluntary cuts into the second quarter to help stabilize the market amidst increased production from non-members and potential demand shifts due to higher interest rates. Ahead of the next OPEC+ meeting, no policy changes are expected until June.?The decline was notably impacted by adjustments in Iraq and Nigeria, the latter influenced by a new domestic refinery.

March's output fell short of the quota by 190,000 barrels daily, though Gulf countries met their targets. Iran's production has surged to a five-year high despite sanctions. OPEC maintains a positive long-term demand forecast, expecting a 23% increase to 116 million barrels per day by 2045.

Record March for Asia's LNG Imports

Asia's LNG imports soared to a record 24 million tons, marking a 12% increase from the previous year, with China, India, and Thailand leading the surge. This growth is attributed to ample gas reserves and lower spot prices, which also caused a 20% reduction in Europe's LNG imports. Notably, India's imports rose by nearly 20%, China's by 22%, and Japan's by 8%. The lower demand in Europe, contributing to the price drop, has enhanced LNG's appeal in Asia, potentially intensifying the competition for Europe's LNG supplies amidst its increased reliance post-Russian gas supply cut.

The calm LNG market might face volatility with emerging supply issues or severe winter conditions. With the current lower prices, China might exceed its 2021 record of 78.8 million tons, and India could see a 10% rise in LNG intake. Asia's spot market LNG purchases in the first quarter rose by 33% year-on-year to 161 cargoes.

Canada Opts Out of LNG Investments

The Canadian government has declared it will not fund LNG projects or provide subsidies for them, emphasizing that the private sector should undertake such investments. Energy Minister Jonathan Wilkinson highlighted Canada's commitment to eliminating inefficient fossil fuel subsidies, stating future LNG exports must use clean electricity to align with climate objectives. This position remains firm despite international interest in Canadian LNG and industry calls to seize export opportunities, especially with the U.S. pausing new LNG project approvals.

UAE Cuts Medium Sour Crude Exports

The UAE is redirecting more of its Upper Zakum crude to its domestic Ruwais refinery, significantly cutting its March exports to around 650,000 barrels per day from an average of 940,000 in 2023. This adjustment enables increased exports of the higher-value Murban crude. Following a $3.1 billion upgrade, the Ruwais refinery can now process up to 420,000 bpd of Upper Zakum, enhancing ADNOC's refining flexibility and market pricing advantages. Since September last year, Upper Zakum has been increasingly used domestically, with future exports planned to decrease further in 2024. This strategy boosts Murban crude sales globally, necessitating importers, notably China, to look for alternative medium sour crude sources.

Brazil Mull, Natural Gas Exports Through Bolivia?

Argentina and Brazil are discussing using Bolivian pipelines to export natural gas from Argentina's Vaca Muerta shale play to Brazil, reversing the current pipeline flow direction. Despite logistical and negotiation challenges, this initiative aims to address Brazil's growing dependence on expensive LNG imports by leveraging Vaca Muerta's significant gas reserves. Argentina, seeking energy self-sufficiency, recently inaugurated a pipeline to reduce LNG import costs. However, realizing exports to Brazil involves infrastructure expansion and tariff negotiations, complicated by Bolivia's hesitance to allow Argentinian gas transit.

Airstrike Destroys Iranian Embassy in Syria, Oil Prices Surge

An air strike on Monday demolished the Iranian consulate in Damascus, Syria, claiming six lives, including a senior Iranian Revolutionary Guards Corp (IRGC) commander and several diplomats. Tehran attributes this attack to Israel. This incident intensifies the ongoing tensions in the region, particularly involving Israel, Hamas, and Iran-backed forces in Syria and Lebanon. Israel, which has not responded to these specific allegations, has previously acted against Iranian and allied targets in the area.

This event could potentially escalate conflicts further, potentially affecting global oil supply and prices, as indicated by the immediate rise in Brent crude and West Texas Intermediate (WTI) following the news of the attack.

Russia to Cut Diesel Exports Significantly

Russia's diesel exports from major western ports are projected to decrease by 21% in April due to diminished refining capacity, affected by Ukrainian drone attacks and seasonal maintenance. This reduction, marking the lowest export levels in five months, could intensify the global shortage of middle distillates. Russia, which typically exports double its domestic diesel consumption, does not intend to impose export bans, according to Deputy Prime Minister Alexander Novak.

This decision comes after a temporary ban last autumn aimed at stabilizing domestic fuel prices amid high crude oil prices and a weakened ruble. However, Russia has suspended gasoline exports through August 31, 2024, to secure domestic supply during high demand periods.

AI surge consequences

U.S. natural gas producers are gearing up to meet the increasing electricity demand driven by data centers and AI technology advancements. Despite the push for renewable energy, natural gas, which already accounts for over 43% of U.S. utility-scale electricity, is deemed essential for reliable power generation. The industry anticipates a significant rise in electricity consumption due to the tech sector's expansion, challenging the preparedness of the U.S. electric grid for such growth.

Industry analyses predict a substantial demand for natural gas, fueled by domestic energy needs and the LNG export boom, positioning it as a crucial component of the country's energy future amidst the renewable transition.

[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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