Chinese Oil Imports Spike

1. Chinese Oil Imports Soar to New Highs

- Chinese crude imports have reached their highest level since June 2020, with the country’s General Administration of Customs showing 52.3 million tons of oil imported, up 22% year-on-year.

- Despite GDP growth slowing down to 5% this year, China’s oil demand has been greatly boosted by the removal of stringent travel curbs and re-emerging flight activity.

- According to Kpler data, exports of Chinese products plunged last month to a third of December 2022 readings (when they hit an all-time high), a mere 650,000 b/d.

- Chinese refiners have been buying a great deal of spot cargoes from the Asian market, but they might prefer to run down their stocks in the summer as the OPEC+ production cut limits oil availability and hikes prices.

2. Diesel Cracks Weaken Despite Supply Woes

- European diesel margins reached their lowest levels this week since the Russia-Ukraine war began in late February 2022 and boosted the profitability of refiners.

- Falling as low as 17 per barrel, profit margins for refining crude into diesel are less than a quarter of the all-time high of more than 80 per barrel recorded in October 2022 amidst widespread concerns that the loss of Russian diesel would disrupt European demand.

- The closure of French refineries by striking trade unions has curtailed diesel supply in Northwest Europe, at the same time the widespread protests have also curbed driving demand and flight activity.

- Driven by lower French and German buying, EU imports of diesel plummeted to 1.4 million b/d last month, the lowest in almost a year according to Kpler data.

3. Urals Moves Closer to Price Cap

- Ever since the Price Cap Coalition imposed a $60 per barrel price cap on Russian oil exports in December 2022, crude prices assessed at the port of loading have been constantly below that mark.

- However, the recent surge in oil prices has brought FOB Urals prices in both Primorsk and Novorossiysk, the two main oil ports of Russia, dangerously close to $60 per barrel.

- Should oil prices move up a further $5 per barrel, buyers that would pay for Russian cargoes above that level would lose access to Western insurance and shipping, with Greek shippers still active in the trade.

- The emergence of a shadow fleet with unclear affiliations is the wildcard on the books, as their utilization might go up when European shippers back out of the game for fear of breaching price cap regulations.

4. Haynesville Under Pressure from Low Gas Prices

- Henry Hub natural gas futures remain only slightly above $2 per mmBtu, undercutting gas producers in the Haynesville shale gas play where the breakeven stands around $3/mmBtu.

- The lower price environment has already left an imprint on drilling activity as 5 drilling rigs located in the basin were deactivated over the past month, taking the total to 81.

- Adding to the gas glut coming from associated Permian output, Haynesville gas production has reached record highs this month, topping 16.2 BCf/d already.

- Regional storage levels in the US South Central region are approximately 256 BCf or 40% full, implying that by this summer inventories could be so full that storage injection would be minimal.

5. Container Rates Suffer Double Whammy of Low Demand and Oversupply

- The global container market will be looking back at the supply chain disruptions of 2020-2021 as years of unprecedented profits, as recession woes continue to keep carrier sentiment subdued.

- A huge amount of container vessels is expected to hit waters in 2023, with the total TEU capacity on order accounting for a third of the existing fleet and this year seeing the arrival of 2.4 million TEU.

- Container tankers are also likely to be the testing ground for new engines compliant with tighter emission regulations, even though the current orderbook consists mostly of dual-fuel engines.

- A proxy of economic growth, Asia-to-Americas container rates continue to linger below 2000 per FEU, with the looming disintegration of the Maersk-MSC alliance further pressurizing freight.

6. Saying Goodbye to King Coal

- Once a hallmark of US power generation, coal is expected to supply about 17% of the country’s electricity this year, less than natural gas or nuclear plants.

- Between 2012 and 2021, an average of 9,450 MW of coal-fired capacity was decommissioned each year in the US, with last year seeing a further 11 GW of closures.

- In general, the United States is on track to close almost half of its current coal-fired generation capacity by the end of this decade, equivalent to 80.6 GW.

- Whilst the states of Michigan and Ohio saw the most closures last year with 1.6 and 1.5 GW, respectively, the 2023 decommissioning will be dominated by Indiana which is set to halt 2.7 GW of its capacity.

7. Lithium Is Facing the Perfect Storm

- One of the weakest performing commodities in 2023 so far, lithium is set for further pricing declines in Q2 as slackening demand from cathode and EV battery makers coincides with higher supply.

- Argentina leads the way in incremental production with four major projects launching this year (Rincon, Tres Quebradas, Cauchari-Olaroz, and Sal de Vida), with many smaller spodumene producers chipping in, too.

- Lithium carbonate prices in China, by far the largest market for the metal, have plummeted to ¥220,000 per metric tonne ($32,000/mt), down 57% year-on-year.

- As many countries dropped their EV subsidies in 2023, leading to a decrease in EV sales, demand remains weaker year-on-year, aggravated by a higher utilization rate of lithium iron phosphate (LFP) batteries.