Author: Ricardo Perez

LNG market faces supply strains

The IEA’s Q3 2024 report highlights supply constraints, Asian demand growth and rising freight rates reshaping global LNG trade and shipping dynamics

The latest IEA Gas Market Report for Q3 2024 presents a mixed picture of the global LNG market, characterised by supply constraints, volatile prices and growing demand centred around Asia.

The report outlines that LNG production underperformed in Q2 2024, while Asian demand surged, reshaping global LNG trade flows. These shifts, in turn, are having a profound impact on LNG shipping and freight rates.

In the first half of 2024, LNG supply growth slowed considerably, increasing by a mere 2% year-on-year. This marked the first contraction in LNG production since the global Covid-19 lockdowns in 2020.

According to the IEA, “LNG output fell by 0.5% in Q2 2024, driven by a combination of feed gas supply issues and unexpected outages.”

This shortfall was particularly evident in the United States, where production challenges at key liquefaction plants such as Freeport LNG hampered growth.

Similarly, African LNG supply contracted due to declining production in Egypt, where exports plummeted by 75% during the first half of the year.

Despite these supply challenges, the LNG market saw a surge in demand from Asia.

The IEA notes, “Asia accounted for around 60% of the increase in global gas demand in the first half of 2024,” with China and India leading the growth.

China’s LNG imports increased by 18%, setting the country on a trajectory to surpass its previous record for annual LNG imports. India followed closely, with a 31% rise in LNG imports, driven by lower spot prices.

These increases in demand have resulted in a reallocation of global LNG cargoes, redirecting flows away from Europe and towards Asian markets, leading to longer shipping routes and increased pressure on LNG freight rates.

The sharp rise in Asian demand comes at a time when European LNG imports have notably declined. Europe’s LNG intake fell by nearly 20% in the first half of 2024, a trend driven by lower demand, high storage levels, and an increase in piped gas deliveries.

As the report highlights, “The share of LNG in Europe’s total primary gas supply fell from 39% in H1 2023 to 33% in H1 2024.”

This reduction has been further exacerbated by geopolitical uncertainties surrounding Russian piped gas supplies, which continue to add volatility to the market. The redirection of LNG cargoes from Europe to Asia is shifting trade patterns and impacting shipping logistics, with carriers needing to optimise for longer voyages to meet the surging Asian demand.

Price volatility has also become a hallmark of the LNG market in 2024. While gas prices fell to precrisis levels during the first quarter of the year, they rebounded sharply in the second quarter due to tighter supply-demand fundamentals.

“Natural gas prices increased across all key markets in Q2 2024,” according to the IEA report.

This resurgence in prices has impacted LNG freight rates, with the demand for shipping services rising in tandem with increased Asian demand and extended shipping routes.

The need for more LNG carriers to meet these shifting market dynamics is likely to push up spot charter rates, adding further complexity to the global LNG shipping sector.

Looking ahead, LNG supply is expected to improve in the second half of 2024, with new liquefaction projects coming online in the United States and West Africa.

The IEA forecasts “Year-on-year growth in LNG supply is expected to accelerate during the second half of 2024.”

Notable capacity expansions include the Freeport LNG expansion and the start-up of the Tortue FLNG facility off the coast of West Africa. According to the latest IEA report, the LNG facility developments are anticipated to ease some of the supply pressures that have constrained the market and the anticipated rise in exports from new projects will be welcome news for LNG shipping companies.

The interplay between supply constraints and demand growth in Asia presents both opportunities and challenges for LNG shipping. While new liquefaction capacity will help address some of the supply issues, the market remains tight, and freight rates are expected to remain elevated due to the longer voyages required to serve the booming Asian markets.

The IEA’s outlook underscores the need for flexibility within the LNG shipping sector, as carriers must adapt to evolving trade routes and fluctuating market conditions.

As the IEA notes, “The limited increase in global LNG supply will restrain growth in import markets,” particularly in Europe, which continues to see declining demand.

By Rivieramm , Craig Jallal / 07 Oct 2024.

Oil’s Security Premium Could Rise, But Is Unlikely To Persist

In summary, the worst case (for the oil market) would be an Israeli attack that reduced Iranian oil exports, and then the issue becomes whether the Saudis raise production to compensate or seek to draw down global inventories in support of prices, which would mean Brent stays over $80. Absent such an attack, the security premium will be only temporary and weakness in the fundamentals will reassert themselves; Brent would sink below $75 again.

At this point, it appears that the conflict in the Middle East is morphing into a ‘forever war,’ with Israel attempting to destroy Hamas and Hezbollah, something which is almost certainly impossible, and to cow Iran into reducing its support for members of the ‘axis of resistance.’ To date, the damage done in both Iran and Israel from ongoing missile attacks has been minimal, but concerns that the situation might escalate has been keeping oil prices elevated, our old friend the security premium making a reappearance. Prices that had been under pressure from fundamentals have instead risen by $5 to $8 a barrel in recent days. Given the possible direction of the conflict, what do the different paths mean for oil prices?

First, it’s important to keep in mind that while fundamentals tend to move slowly, geopolitical events can change abruptly and drastically. Although oil supply sometimes drops sharply, demand evolves only gradually: next month, next quarter, will not be substantially different from current levels. In effect, geopolitics are fast, fundamentals slow but more persistent.

That said, consider the different political/military decisions going forward. It should be taken for granted that Israel will continue to prosecute the war against Hamas and Hezbollah, but their response to the latest Iranian missile attack remains unclear. There are four likely choices: a minimal attack, such as after the April barrage from Iran, would ease tensions and see oil prices pull back quickly. Israeli rhetoric at this point implies this is unlikely.

Next, a larger attack from Israel that targets Iranian military bases and infrastructure, such as weapons depots or factories, is possible. Given recent developments, Israel clearly has good intelligence on its adversaries, so such an attack is doable, although the long-term effects would be minimal. However, Iran would almost certainly respond with another missile attack which would mean that the tit-for-tat exchanges would continue the security premium on oil prices would remain elevated.

A third choice would be for Israel to go after Iranian nuclear facilities, something that Israel has supposedly long wanted to do but been restrained from attempting by the U.S. However, with U.S. influence clearly at a low point, Netanyahu might be tempted to undertake this, seeing a successful attack as a crowning achievement to his long political career. There is uncertainty about Israel’s ability to launch such an attack without U.S. help and many caution that Iranian facilities are not vulnerable to air strikes. Even so, Israel might feel that inflicting minor damage on those sites would provide a demonstration effect and serve as a deterrent to further Iranian retaliation. Again, this would translate into continuing violence, keeping the oil price’s security premium high.

Finally, some have been suggesting Israel might attack Iranian oil infrastructure, including refineries or export facilities. Reducing Iran’s oil income would seem desirable from Israel’s point of view, and while the U.S. would presumably discourage such a move, especially the Biden Administration which doesn’t want an October surprise of higher oil prices, U.S. political clout appears at a low point.

Expectations of an Israeli attack on the Iranian oil industry explains much of the recent elevation in prices, since that is the only likely development that would have a direct impact on world oil markets. However, even the destruction of the Abadan and Bandar Abbas refineries, with 700 tb/d of capacity, while no doubt generating impressive videos of spectacular fires and explosions, would not have a major effect on world oil markets.

In 1951, the Iranian nationalization of BP’s holdings and the shutdown of Abadan raised Asian oil prices by approximately 30%, because at that time, Abadan was providing a large fraction of Asian product demand. Now, those two refineries together provide less than 1% of world capacity and could easily be replaced. The figure below shows global refinery capacity and throughput with an implied 20 mb/d of surplus but overstates the available capacity. A more realistic estimate would be about 3-5 mb/d of surplus capacity, at any rate, more than enough to replace any disruption to Iranian operations. There would be some rebalancing and Iran would lose money, but aside from that the impact would be minor.

An attack on Iranian oil fields would also look impressive, generating massive blazes but having only a limited effect on supplies given the dispersed nature of production. Destroying the tanker loading facilities at Kharg Island would be more serious and could reduce Iranian oil exports by perhaps 1 mb/d in the worst case scenario. Then, the question becomes whether or not the Saudis replace the lost supply. They have ample spare capacity, but might prefer to let markets tighten, inventories drop, and prices firm. In that case, Brent would remain at or above $80.

In essence, there are three paths forward: the level of violence remains roughly constant or declines, in which case the security premium would fade as traders get crisis fatigue, Brent sliding back towards $70-75. Alternatively, an escalation with continuing missile attacks and/or assassinations would mean traders remain fearful of an oil supply disruption and the price would remain elevated, as it is now (Brent about $78). Finally, any attack on Iranian oil facilities would boost Brent above $80, if and only if Iranian exports dip significantly and the Saudis refuse to raise production.

Overall, then, the prospect is for prices to return to the levels of September, sooner rather than later, and the chances for Brent to remain above $80 for any period appears slim. Even so, wagering on peace in the Middle East is never for the faint-hearted.

By: Forbes, Michael Lynch- Oct 6, 2024

Warren Buffett Is Selling Apple Stock and Buying This Magnificent Oil Stock Instead

Warren Buffett finally did it. After making a monster investment in Apple (NASDAQ: AAPL) many years ago and watching it appreciate by multiples of his cost basis, the legendary investor is trimming Berkshire Hathaway’s (NYSE: BRK.B) stake. According to filings with the SEC, Buffett has sold approximately half of Berkshire’s stake in Apple, raising around $80 billion in cash. Yes, that’s how big a winner Apple was for the company.

What is he doing with all this cash? The largest stock purchase for Berkshire Hathaway in the second quarter was Occidental Petroleum (NYSE: OXY). Here’s why he is selling Apple and buying this oil stock instead.

Expanding Apple valuation

Apple has made its investors a fortune over the last few decades. After releasing the revolutionary iPhone — perhaps the most successful single product in history — its stock has generated huge returns for shareholders. Total return in the last 10 years alone is close to 1,000%.

While that is all fine and dandy, today the company is seeing stagnating revenue growth amid market saturation for smartphones. Revenue has essentially been flat over the last few years as fewer people have upgraded to new iPhones, which is the only true needle mover for the company. It has struggled to innovate and convince people to buy new phones while battling a consumer recession in China. Recent products such as the Apple Vision Pro look like flops so far, and the company has fallen behind in artificial intelligence to competitor Alphabet.

Stagnating sales are coupled with an expanded earnings multiple. Apple’s price-to-earnings ratio (P/E) is now closing in on 35, which is wildly expensive for a low-growth business. Given Buffett’s intense focus on valuation in his investment process, it is no surprise to see him unloading his shares in the iPhone maker. The upside doesn’t look too appetizing at these levels.

A cheap oil stock?

Buffett’s biggest purchase last quarter was in Occidental Petroleum. Berkshire Hathaway owns a whopping 27.25% of Occidental’s outstanding shares, making it the largest shareholder by far in the company.

Why is Buffett attracted to the stock? First and foremost is the valuation. Oil and gas companies have been neglected by investors for years as they focus on exciting technology companies. Occidental Petroleum trades at a P/E of 12.6, which is around one-third that of Apple. The company is one of the largest oil producers in the United States, with over 82% of its production coming from domestic sources. This makes it less risky than other oil companies that have to deal with adversarial foreign governments.

Occidental can also play as a hedge for oil prices. Rising oil prices can be inflationary and affect other parts of the economy and the Berkshire Hathaway portfolio. If oil prices rise, Occidental Petroleum will benefit, but likely hurt the earnings power of Berkshire’s railroad subsidiary by increasing input costs. This way, Berkshire Hathaway is playing both sides of the situation. No matter what happens, it comes out on top.

Even better for Buffett, Occidental trades at a cheap P/E when oil prices are falling. The current level for crude oil is $68 a barrel, which is well off the highs of around $100 a barrel or higher in 2022. If the price of oil starts to rise again, Occidental’s earnings power will rise too.

A lesson in the risk-free rate

With his selling of Apple and buying of Occidental Petroleum, Buffett is giving investors an important lesson in the risk-free rate and how it can affect your investing decisions.

Today, Berkshire Hathaway has a cash pile approaching $300 billion sitting in short-term U.S. Treasury bills. These bills earn around 5% in yield every year and can be considered the risk-free rate for investors. Why? Because you can compare them to the earnings yield of other stocks in your portfolio.

An earnings yield is the inverse of the P/E and tells you how much in earnings you are yielding each year from a company, based on the current stock price. Apple’s earnings are not growing, and it has a P/E of close to 35. Invert that P/E, and you have an earnings yield of 2.9%. Buffett is saying he would rather own Treasury bills than get a 2.9% yield owning Apple stock.

But what if we look at Occidental Petroleum’s earnings yield? Take one divided by 12.6, and its earnings yield is 7.9%. That is much higher than the current Treasury yield. While it’s not the entire story for any stock, comparing the earnings yield to the risk-free rate is a good way to gauge whether you should buy the stock. This likely came into consideration when Buffett was selling Apple and buying shares of Occidental Petroleum.

By: Brett Schafer for The Motley Fool / October 03, 2024.

Enbridge, Shell to build pipelines to service BP’s Kaskida oil hub

Canada’s Enbridge , opens new tab said on Thursday it would build and operate crude oil and natural gas pipelines in the U.S. Gulf of Mexico for the recently sanctioned Kaskida oil hub, operated by British oil major BP (BP.L), opens new tab.

Separately, Shell  announced the final investment decision for its Rome Pipeline, which would export the oil produced from the Kaskida project.

BP’s sixth operating hub, Kaskida, has oil production slated to start in 2029 and features a new floating production platform with a capacity to produce 80,000 barrels per day from six wells in the first phase.

The company’s U.S. Gulf of Mexico output averaged 300,000 barrels of oil and gas per day in 2023, with the company targeting 400,000 bpd by 2030.

Enbridge’s crude oil pipeline would be called the Canyon Oil Pipeline System, with a capacity of 200,000 bpd.

Its natural gas pipeline would be named Canyon Gathering System with a capacity of 125 million cubic feet per day and would connect subsea to Enbridge’s offshore existing Magnolia Gas Gathering Pipeline.

The pipelines are expected to be operational by 2029 and would cost $700 million, the Canadian firm said.

Shell’s Rome Pipeline, projected to begin operations in 2028, would increase access between the company’s Green Canyon Block 19 pipeline hub and the Fourchon Junction facility on the Louisiana Gulf Coast.

By Reuters / October 3, 2024

Adnoc-Backed VTTI Looks to Buy Into LNG Terminals in Asia

Energy storage company VTTI BV, backed by Abu Dhabi’s main oil company and Vitol Group, is looking to invest in LNG import terminals in Asia as demand for the fuel increases in the region.

“There is a lot of potential in India, Bangladesh, Pakistan and the Philippines,” Chief Executive Officer Guy Moeyens said in an interview on Tuesday in Fujairah in the United Arab Emirates. “There will be a disproportionate need for regasification facilities in that region. More than, I would say, in Europe or the Americas.”  

The Rotterdam-headquartered company acquired a 50% stake in Dragon LNG, one of the UK’s three LNG import terminals, in August and agreed to buy a majority stake in Italy’s Adriatic LNG earlier this year. It also has an agreement with Hoegh LNG to jointly develop an energy terminal in the Dutch province of Zeeland. 

It’s now keen to expand in similar facilities in Asia by investing alongside a partner, Moeyens said.

LNG is taking on an increasingly important role in the world’s energy supply as countries look to use more of the cleaner-burning fuel amid concerns over climate change, while they also build more renewable energy projects. The US and countries in the Middle East are among regions expanding their LNG export capacities in order to meet the rising demand.           

VTTI counts Abu Dhabi National Oil Co. and Vitol as shareholders. Adnoc this year approved the construction of a new LNG export terminal, and bought stakes in projects in the US and Africa.

By Verity Ratcliffe, Bloomberg / October 02, 2024

China’s cracker expansion to drive LPG storage growth

China’s LPG storage capacity is expected to expand again in 2025 after it continued to grow in 2024, the latest Global LPG Storage Survey finds. But whereas the expansion of the past five years has been driven by the country’s investment in propane dehydrogenation (PDH) projects, next year’s increase is supported by facilities built to serve new ethylene steam crackers.

China’s PDH capacity reached 22.6mn t/yr by the end of September, up 237pc from 6.7mn t/yr at the end of 2019. This has necessitated a significant increase in propane imports as well as domestic refrigerated LPG storage capacity for VLGC deliveries, which rose 159pc to 5.7mn t from 2.2mn t. The number of import terminals that can be served by VLGCs has grown to 41 from 23 since 2019.

China’s PDH expansion is expected to slow next year owing to sustained negative production margins. Yet the country’s LPG storage capacity is yet again on course to rise, by 330,000t to 6.1mn t, backed by projects tied to new crackers. Domestic petrochemical producers believe LPG will be more competitive than naphtha in terms of cost over the long term, and are consequently building crackers designed to use the feedstock, including ExxonMobil’s 1.6mn t/yr cracker in Huizhou, and BASF’s 1mn t/yr cracker in Zhanjiang.

Ethane imported from the US is likely to be even more competitive than LPG or naphtha, resulting in a crop of new ethane-fed cracker projects as well as conversions of existing units, supporting the development of ethane import terminals and storage capacity. Huatai Shengfu’s 600,000 t/yr cracker in Ningbo will switch one of its propane furnaces to ethane use by the end of this year, converting its VLGC terminal into an ethane dedicated one. The 320,000 b/d Shenghong Petrochemical and 800,000 b/d Zhejiang Petroleum and Chemical integrated refineries also plan to develop new ethane terminals in the medium term. China’s ethane storage capacity is forecast to rise by 320,000t to 760,000t by the end of 2025 as a result.

By: Market: LPG, 02/10/24

The Global Refining Slump: Here’s What Investors Should Know

The global refining industry is grappling with a notable downturn in profitability, with refineries in Asia, Europe and the United States facing pressure from weakened demand and increased supply. Refiners have seen exceptional profits in recent years due to pandemic recovery and geopolitical disruptions, but the current dynamics paint a different picture. New refining capacities, alongside tepid industrial demand, especially from China, have combined to push margins to multi-year lows.

The weak outlook for refining profitability translates into a significant headwind for companies like TotalEnergies TTE, Eni SpA E and PBF Energy PBF. On the other hand, diversified operators like Marathon Petroleum MPC and Phillips 66 PSX are better placed to weather the downturn.

Demand & Supply Woes Plaguing Refiners

Sluggish Demand Growth and EV Impact: One of the key reasons behind the fall in profits is sluggish fuel demand. This is particularly evident in China, the world’s largest oil importer, where the economic slowdown has hampered industrial output. In August, China’s oil refinery output declined for the fifth consecutive month, reflecting soft demand and weak export margins. Additionally, the rise of electric vehicles has started to dampen demand for traditional fuels, further straining the refining sector.

The impact of slow demand isn’t limited to Asia. In the United States, the 3-2-1 crack spread, a key profitability measure, has slumped below $15 a barrel, a level not seen since 2021. This indicates that U.S. refiners, too, are feeling the pinch, with gasoline and diesel margins declining sharply. Diesel, in particular, faces a global oversupply issue, which is expected to keep margins under pressure for the foreseeable future.

An Oversupplied Market: While demand weakens, supply continues to grow, thanks to several new refinery projects that have come online. Africa, the Middle East and Asia have all seen the start-up of large refineries, including Nigeria’s 650,000 bpd Dangote plant and Kuwait’s 615,000 bpd Al Zour facility. These additions have significantly increased global refining capacity, worsening the oversupply situation.

Older refineries, particularly in Europe, are feeling the brunt of this oversupply. For example, Scotland’s Grangemouth refinery is set to close in 2025 due to unsustainable margins. In response to the ongoing challenges, some refiners are cutting back on production, though this may not be enough to balance the market in the near term.

Some Refiners Feel the Pinch While a Few Stands Out

The oversupply issue is reflected clearly in profit margins. Diesel margins in Europe have tumbled to around $13 a barrel, the lowest since late 2021, while gasoline margins are under pressure despite relatively stable demand. This situation is further exacerbated by the fact that some U.S. refiners are entering one of the lightest fall maintenance seasons in three years, meaning that more capacity remains operational, adding to the supply glut.

European downstream operators like TotalEnergies and Eni, which benefited from soaring margins in 2022 and early 2023, are now facing headwinds. While some, like Italy-based Eni, have begun implementing measures to mitigate the drop in margins, others are still assessing their strategies. Among the U.S. companies most impacted by the current environment are PBF Energy and Delek US, which are already making difficult decisions regarding shareholder returns, with the potential for cuts in buyback programs. Valero Energy, another significant player, has seen downgrades as it faces near-term issues over refining income.

Meanwhile, Zacks Rank #3 (Hold) refiners with diversified operations, like Marathon Petroleum and Phillips 66, are better equipped to navigate the downturn. Their exposure to non-refining cash flows, combined with strong balance sheets, offers resilience in challenging market conditions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Way Ahead for Refiners

The short-term outlook for the refining industry remains muted. The International Energy Agency forecasts diesel and gasoil demand to contract 0.9% this year, with limited signs of recovery. However, there could be some support from higher seasonal demand for diesel during the winter months, particularly in Europe. Gasoline demand, though slightly more robust, is not strong enough to offset the overall downturn in the sector.

Despite the current challenges, some analysts maintain a cautiously optimistic view of the future. A light maintenance season could help soak up some of the excess crude supply, providing a slight lift to oil prices and potentially stabilizing refining margins.

By; Nilanjan Choudhury/ Sep 24, 2024

FTC Set to Greenlight Chevron’s $53 bln Buy of Oil Rival Hess, Sources Say

The U.S. Federal Trade Commission is expected to greenlight U.S. oil producer Chevron’s purchase of Hess as soon as this week, two people familiar with the matter said, leaving Exxon Mobil’s challenge to the $53 billion deal as its final hurdle.

The proposed merger was first announced last October, and the FTC sent a second information request to Chevron two months later. Hess shares were up as much as 3% in after-hours trading on Monday following the news.

Uncertainty over the deal’s closing has knocked Chevron shares down 1% this year compared to a 6.5% increase in energy share fund XLE.

Exxon and CNOOC Ltd, Hess’s partners in a Guyana joint venture, are challenging the deal by claiming a right of first refusal to any sale of Hess’s Guyana assets, the prize in the proposed merger.

A three-judge arbitration panel is due to consider the case in May 2025. Chevron and Hess say a decision is expected by August, while Exxon expects it by September 2025.

The proposed all-stock acquisition is one of the largest in a consolidating U.S. oil and gas industry where several multi-billion dollar deals have been disclosed.

Chevron’s announcement of the Hess deal followed Exxon’s $60 billion purchase of U.S. shale giant Pioneer Natural Resources, which closed in May.

Two other mergers, Occidental Petroleum’s deal for CrownRock and Diamondback Energy’s bid for Endeavor Energy Resources, have closed even though they came after the Chevron-Hess combination.

The FTC required Exxon to withdraw its offer of a board seat to Pioneer Natural Resources CEO Scott Sheffield as a condition for its go-ahead. The FTC alleged he colluded with OPEC to reduce U.S. oil and gas output to potentially raise the price of oil.

Sheffield denied the allegations and has asked the FTC to vacate its ban on his taking an Exxon board seat.

A spokesperson for the FTC declined to comment on Monday.

EXXON ARBITRATION

The dispute over terms of the contract governing the Exxon-CNOOC-Hess partnership stalls any closing to the second half of 2025. The Guyana consortium controls one of the world’s fastest growing and lucrative oil provinces with more than 11.6 billion barrels of recoverable oil and gas discoveries since 2015.

Exxon operates all production in Guyana with a 45% stake in an offshore oil production consortium with Hess and China’s CNOOC, as minority partners. Combined earnings for the trio from Guyana last year were $6.33 billion on $11.25 billion in revenue.

The information was first reported by CTFN, a data and news provider to financial professionals.

By: Reuters / September 24, 2024

OPEC boosts long-term oil demand outlook, driven by developing world growth

OPEC raised its forecasts for world oil demand for the medium and long term in an annual outlook, citing growth led by India, Africa and the Middle East and a slower shift to electric vehicles and cleaner fuels.

The Organization of the Petroleum Exporting Countries, in its 2024 World Oil Outlook published on Tuesday, sees demand growing for a longer period than other forecasters like BP (BP.L), opens new tab and the International Energy Agency, which expect oil use to peak this decade.

Future energy demand is found in the developing world due to increasing populations, middle class and urbanization,” said OPEC Secretary General Haitham Al Ghais during the report’s launch in Brazil, a country with which the group is seeking to form closer ties.

Al Ghais’ speech in Rio de Janeiro was briefly disturbed by a protester from Greenpeace.

A longer period of rising consumption would be a boost for OPEC, whose 12 members depend on oil income. In support of its view, OPEC said it expected more push back on “ambitious” clean energy targets, and cited plans by several global carmakers to scale down electrification goals.

All policymakers and stakeholders need to work together to ensure a long-term investment-friendly climate,” Al Ghais wrote.

HIGHER 2029 FORECAST THAN IEA

OPEC also raised its medium term demand forecasts, citing a stronger economic backdrop than last year as inflation pressure wanes and central banks start to lower interest rates.

World demand in 2028 will reach 111 million bpd, OPEC said, and 112.3 million bpd in 2029. The 2028 figure is up 800,000 bpd from last year’s prediction.

OPEC’s 2029 forecast is more than 6 million bpd higher than that of the IEA, which said in June demand will plateau in 2029 at 105.6 million bpd. The gap is larger than the combined output of OPEC members Kuwait and the United Arab Emirates.

In 2020, OPEC made a shift when the pandemic hit oil demand, saying consumption would plateau in the late 2030s. It has begun raising forecasts again as oil use has recovered.

By 2050, there will be 2.9 billion vehicles on the road, up 1.2 billion from 2023, OPEC forecast. Despite electric vehicle growth, vehicles powered by a combustion engine will account for more than 70% of the global fleet in 2050, the report said.

“Electric vehicles are poised for a larger market share, but obstacles remain, such as electricity grids, battery manufacturing capacity and access to critical minerals,” it said.

OPEC and its allies, known as OPEC+, are cutting supply to support the market. The report sees OPEC+’s share of the oil market rising to 52% in 2050 from 49% in 2023 as U.S. output peaks in 2030 and non-OPEC+ output does so in the early 2030s.

By Alex Lawler, Reuters / September 24, 2024

Crude oil edges higher due to the US Fed interest rate cut and renewed supply fears amid escalating geopolitical conflicts

Crude oil prices gained last week, reaching a two-week high, driven by a significant interest rate cut by the United States Federal Reserve (US Fed) and declining global stockpiles, which bolstered sentiment in both physical and futures markets. However, the surge was capped by forecasts of a decline in consumption in China, the world’s second-biggest economy. Analysts believe the energy sector will continue to gain in the near future, though global supply and demand uncertainty, following escalating geopolitical conflicts, remains a caveat.

Data compiled by Polymerupdate Research showed the benchmark Brent crude futures for near month delivery on the InterContinental Exchange (ICE) rose steadily by 4 percent last week, primarily due to cautious bullish activity despite the lack of a clear direction. The Brent crude contract started the week with a marginal gain, closing at US$ 72.25 a barrel on Monday, up from US$ 71.61 a barrel the previous Friday. The upward trend persisted across the energy contract, despite volatility, with the contract settling at US$74.49 a barrel on Friday.

A similar trend was observed in the Western Texas Intermediate (WTI) Cushing futures for near month delivery at the New York Mercantile Exchange (Nymex), with the contract starting the week with a gain, closing at US$ 70.09 a barrel on Monday, up from US$ 68.65 a barrel the previous Friday. With a weekly gain of 4.76 percent, WTI futures closed on Friday at US$ 71.92 a barrel.

Shaky fundamentals
Oil prices extended their recent recovery rally and rose last week as a 50 basis points (bps) interest cut to 4.75-5 percent in United States interest rates and declining global stockpiles helped offset some of the demand concerns arising from weak consumption in China. Interest rate cuts typically boost economic activity and energy demand, but some also saw the large cut as a sign of a weak United States labour market. The Bank of England on Thursday held interest rates at 5 percent. The declining global crude stockpiles should support oil prices going forward. Crude inventories in the U.S., the world’s top producer, fell to a one-year low last week.

A report from the broking and financial advisory firm AndndRathi Investment Services, said, “Oil may trade with upward bias in the near term on supply threat from renewed geopolitical tensions and weather disruptions along with declining Cushing stockpiles. But China remained a key pain point for crude markets, as economic readings from the world’s biggest oil importer showed little signs of improvement. Thus upside may remain capped around US$ 73.50 a barrel for WTI oil futures.

As expected, the People’s Bank of China (PBoC) kept its key lending rates unchanged at the September fixing, aligning with market estimates. The one-year loan prime rate (LPR), the benchmark for most corporate and household loans, was maintained at 3.35 percent. Meanwhile, the five-year rate, a reference for property mortgages, was held at 3.85 percent. Both rates remain at record lows following unexpected rate reductions in July. The government’s move came after the central bank delayed the medium-term lending facility (MLF) operation for the second time in two months, as the PBoC planned to let short-term rates play a bigger role in guiding markets.

Facing economic challenges across the region, the Bank of England kept the Bank Rate unchanged at 5 percent during its September 2024 meeting, following a 25 bps cut in August, the first reduction in over four years. This decision met market expectations, though one member favoured a further 0.25 percentage points cut to 4.75 percent. The annual inflation was 2.2 percent in August, and is expected to increase to around 2.5 percent towards the end of this year as declines in energy prices last year fall out of the annual comparison. The number of people claiming unemployment benefits in the United States dropped by 12,000 from the previous week to 219,000 on the period ending September 14h, significantly below market expectations of 230,000, and reaching a new 4-month low.

The world is facing two major geopolitical conflicts: the war between Russia & Ukraine, and Israel & Hamas-Hezbollah-Iran. These conflicts have created a global economic and oil supply uncertainty, especially in the Middle East, which accounts for over a third of production worldwide. Additionally, economic downturn in the United States with rising unemployment rates, and slow recovery in China, have also added to the existing problems.

Deceleration in China’s oil consumption
China, the world’s second-biggest economic after the United States, is facing an abrupt deceleration in oil consumption, which is cooling global demand growth sharply from the rates seen in recent years, according to the latest report by the International Energy Agency (IEA). World oil demand is on course to increase by 900 000 barrels per day (bpd), or 0.9 percent, in 2024 and 950 000 bpd next year, down from 2.1 million bpd, or 2.1 percent, in 2023. IEA’s monthly data reported by countries representing 80 percent of global oil demand for the first six months confirm the sharp slowdown in the rate of growth in oil consumption. Global demand rose by 800 000 bpd, or 0.8 percent, year on year during the first half of the year.

The recent downturn in China has been even more acute than expected, with oil demand in July declining year on year for a fourth consecutive month, according to IEA. At the same time, growth outside of China is tepid at best. This weaker demand environment has helped fuel a sharp sell-off in oil markets. Brent crude oil futures have plunged from a high of more than US$ 82 a barrel in early August to near three-year lows at just below US$ 70 a barrel on 11 September.

China has been the cornerstone of the growth in global oil demand so far this century. Dynamic factory activity, massive infrastructure investments and rising prosperity across a population of over 1 billion people driving what has, at times, felt like an inexorable expansion in oil consumption. Over the past decade, the annual increase in Chinese oil demand has averaged in excess of 600 000 bpd, accounting for more than 60% of the total global average increase. Moreover, China’s share of global demand growth has expanded since the pandemic. This year, demand outside China will remain 0.3 percent below 2019 levels, but in China, consumption will be 18 percent higher, IEA forecasts.

By: polymerupdate , DILIP KUMAR JHA / 23 Sep 2024