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Oil Hits 7-Week High On Strong Demand In China

Oil prices held near 7-week highs on Tuesday morning, with strong demand figures from China fueling optimism in the markets.

Chart of the Week

Influx of Russian Crude Cools Down Asian Oil Prices

- In less than two weeks, the EU's embargo on products imports from Russia is set to kick in, and despite a declining trend, Russian diesel deliveries to the EU are still some 450,000 b/d strong. 

- A diesel price spike seems almost inevitable as middle distillate inventories in OECD Europe remain some 30 million barrels below the 5-year average and US diesel production is hamstrung by idled refining capacity. 

- Just as Europe is bracing for the impact of the diesel ban, strikes began at three French refineries, curtailing supply of middle distillates and gasoline in the country at the worst possible time.  

- Europe's key diesel futures, the front-month ICE gasoil contract, surpassed the $1,000 per metric tonne mark for the first time since November 2022, indicating that the diesel squeeze is on. 

Market Movers

-- UK energy major Shell (LON:SHEL) recorded another commercial discovery of hydrocarbons in offshore Namibia with its Jonker-1 wildcat, the third big find there in less than a year. 

- Freeport LNG claims it had completed repairs to the liquefaction facility and asked US regulators to partially resume operations, though the decision is still subject to a FERC safety review. 

- Dutch authorities will stick to their pledge to shut Europe's largest onshore gas field in Groningen by October due to recurrent earthquakes, denting the portfolio of JV partners Shell (LON:SHEL) and ExxonMobil (NYSE:XOM)

Tuesday, January 24th, 2023

The start of the Lunar New Year in China has at last slashed the amount of news dealing with the Asian powerhouse's 2023 demand increases and brought the United States back into the limelight. Torn between the urge to replenish SPRs and push WTI below $80 per barrel again, the weakness of US refining coupled with maintenance-heavy weeks ahead could become that rotten apple which spoils the barrel.

White House Mulls Veto on SPR Bill. US top officials said President Joe Biden would veto a Republican-sponsored bill that seeks to limit the president's authority to tap into national strategic petroleum stocks, provided the bill passes the Congress. 

U.S. Softens Tone on Product Price Cap. U.S. Treasury Secretary Janet Yellen said the Price Cap coalition is working to come up with caps on Russian petroleum products, assumed to kick in on February 5, but the markets "are complicated and there's a chance things would not go to plan". 

Investors Are Roaming into the Market Again. Portfolio investors have added positions in the oil and product futures and options markets at the fastest rate in more than two years, purchasing an equivalent of 89 million barrels (most of it crude) in the week ending January 17.  Related: U.S. Gasoline Prices Continue To Climb

Russian Oil Exports Soaring Despite Cap. Russian crude oil loadings from Baltic ports are set to increase by 50% compared to December to 1.7 million b/d, brushing aside fears of the oil price cap denting production, as the majority of cargoes is heading to India. 

Kuwait Government Resigns. Amidst ceaseless parliamentary protests demanding that the government buy back consumer loans and raise salaries from its oil wealth, the entire government of Kuwait (appointed by the ruling family, as opposed to the elected assembly) resigned this week.

Colombia to Halt New Oil Projects. Colombia's government announced it will not issue new oil and gas exploration contracts (currently the Latin American country has 381 active projects) and that Bogota will instead direct investments into tourism and renewable energy sources. 

Protesters Storm BNP. Activists from the Extinction Rebellion movement rallied outside the headquarters of French bank BNP Paribas (EPA:BNP) after it provided financing for the $3.5 billion TotalEnergies-developed (NYSE:TTE) East African Crude Oil Pipeline, connecting Uganda to the Tanzanian coast.

Dark Clouds Over Offshore Wind. The woes of two leading offshore wind companies, Orsted's (CPH:ORSTED) writedown of a huge US project and Siemens Gamesa's $0.5 billion impact hit due to faulty turbine components, highlight the headwinds for wind energy in times of cost inflation and higher financing costs. 

Permian Growth to Dissipate Soon. The latest EIA Short-Term Energy Outlook predicts that in 2023 Permian would still represent 80% of the US' crude production growth of 540,000 b/d, however the shale superbasin's annual increment is expected to shrink to 270,000 b/d in 2024.

China Finally Lays Its Hands on Bolivia's Lithium. After years of negotiations, a Chinese consortium comprising battery giant CATL (SHE:300750) and mining major CMOC (SHA:603993) signed a deal with Bolivia to develop the world's purest and largest reserves of lithium in the Salar de Uyuni.  

OPEC Experiments with Green Bonds. The OPEC Fund for International Development has raised $1 billion by selling its first ever bond last week, with the 3-year bond paying investors 4.5% as the raised money will be going towards sustainable projects in food security or renewable energy.  

China Still Has Grand Plans for Coal. According to the China Electricity Council, the Asian powerhouse will add 70 GW of coal-fired power generation capacity this year, almost double of the 40 GW seen in 2022, with only solar seeing higher capacity increases (100 GW).    

Portugal to Launch Its First Wind Auction. The government of Portugal is preparing to start its first-ever offshore wind power auction by Q4 2023, seeking to secure 10 GW of installed capacity by 2030, boosting its already high renewable generation ratio of 60% to almost 90% by the end of the decade. 

By Tom Kool for

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Tom Kool

Tom majored in International Business at Amsterdam’s Higher School of Economics, he is's Head of Operations More