1. OPEC+ Confronts Quota Imperfections, Weak Sentiment
- Saudi Arabia and Russia, the two heavyweights of OPEC+, have managed to coordinate a wider response to weakening market sentiment and agree on voluntary cuts of 2.2 million b/d in their latest November 30 summit.
- Saudi Arabia is rolling over its voluntary 1 million b/d production cut into Q1 2024, joined by Russia which promised to curb the supply of crude by 300,000 b/d and of oil products by another 200,000 b/d.
- Six other OPEC+ members chipped in with their voluntary cuts, spearheaded by Iraq (223,000 b/d), the UAE (163,000 b/d), Kuwait (135,000 b/d) as well as Kazakhstan, Algeria, and Oman with smaller volumes.
- The OPEC+ meeting also set production quotas for Nigeria and Angola into 2024, at 1.5 and 1.11 million b/d respectively, although the Angolan delegation announced that it would defy the mandate and produce above that level.
2. Europe Cannot Get Enough of US LNG
- As exports of US LNG into Eastern Asia continue to be hindered by hefty congestion-driven delays in Panama Canal operations, the European continent has become the key outlet market for US liquefied gas exports.
- Year-to-date imports of US LNG to Europe have already soared to 45.1 million tonnes in January-November, surpassing the full-year total of 2022 and setting the stage for a 10% year-on-year increase.
- The relative ease of shipping across the Atlantic Basin has sent Europe-bound…
1. OPEC+ Confronts Quota Imperfections, Weak Sentiment
- Saudi Arabia and Russia, the two heavyweights of OPEC+, have managed to coordinate a wider response to weakening market sentiment and agree on voluntary cuts of 2.2 million b/d in their latest November 30 summit.
- Saudi Arabia is rolling over its voluntary 1 million b/d production cut into Q1 2024, joined by Russia which promised to curb the supply of crude by 300,000 b/d and of oil products by another 200,000 b/d.
- Six other OPEC+ members chipped in with their voluntary cuts, spearheaded by Iraq (223,000 b/d), the UAE (163,000 b/d), Kuwait (135,000 b/d) as well as Kazakhstan, Algeria, and Oman with smaller volumes.
- The OPEC+ meeting also set production quotas for Nigeria and Angola into 2024, at 1.5 and 1.11 million b/d respectively, although the Angolan delegation announced that it would defy the mandate and produce above that level.
2. Europe Cannot Get Enough of US LNG
- As exports of US LNG into Eastern Asia continue to be hindered by hefty congestion-driven delays in Panama Canal operations, the European continent has become the key outlet market for US liquefied gas exports.
- Year-to-date imports of US LNG to Europe have already soared to 45.1 million tonnes in January-November, surpassing the full-year total of 2022 and setting the stage for a 10% year-on-year increase.
- The relative ease of shipping across the Atlantic Basin has sent Europe-bound US LNG exports to 4.9 million tonnes in November, equivalent to a 65% market share, the largest this year, whilst deliveries to Asia last month accounted for just 21%.
- Northwest Europe takes in most of US LNG volumes, with the Netherlands becoming the largest buyer on the continent, followed by Great Britain and France, with the three accounting for 55% of all imports.
3. China Gives Shandong Refiners Quota Relief
- China's Ministry of Commerce handed a last-minute lifeline to the country's independent refineries, mostly located in the northern province of Shandong, by raising fuel oil import quotas by 3 million tonnes.
- Unlike crude import quotas, the fuel oil import mechanism is effectively a first-come-first-served bidding system where oil companies are required to apply for approval cargo by cargo until the annual total volume is reached.
- Without adequate crude oil cover, utilization rates amongst Shandong "teapots" have dropped as low as 57% in recent weeks, although the new quota should boost runs over the remaining weeks of 2023.
- Fuel oil premiums, especially for Russian high sulfur fuel oil, the most preferred grade, have spiked up in the region, with Russian volumes reported to be at a premium of $80 per metric tonne to Singapore's mean prices of $500/mt.
4. Scandinavia Faces Power Supply Scare After Nuclear Outages
- Two unplanned outages at nuclear reactors in Sweden and Finland sent electricity prices in Scandinavia to the highest level since March 2023, highlighting the fragility of power supply in the region.
- Both Vattenfall's Ringhals-4 nuclear reactor in Sweden and Voima's Olkiluoto-3 reactor in Finland went down due to technical failures, with the latter remaining in test mode after prolonged delays.
- As most of Europe has been experiencing a string of cold temperatures with both Stockholm and Finland enjoying a chill 20° F (-8° C locally), nuclear supply disruptions highlight the fragility of winder power generation.
- Faced with still-increasing power demand, Sweden has pledged to build as many as 10 new nuclear reactors over the next 15 years, raising nuclear's market share well above its current level of 33%.
5. COP28 Starts As Fossil Fuels Remain in Vogue
- The COP28 climate change conference started this week in Dubai amidst skepticism that emerging economies actively seeking a higher energy intensity and developed nations seeking to cut their fossil fuels exposure can find a common language.
- Despite the bad reputation surrounding it, coal is still the No.1 source of global electricity generation, accounting for 36% of the total which is only marginally lower than last year's readings.
- Even though worldwide renewable generation has grown at almost triply the pace of fossil fuels since 2019, outright output of fossil energies continues to edge higher, already above 1500 TWh per month.
- Natural gas consumption has been on the rise globally with both the United States and China recording their highest-ever figures in 2023, more than offsetting weak gas growth in Europe.
6. Panama Protests Add Bullish Sentiment to Copper Outlook
- The halting of operations at one of the largest copper mines globally, the Cobre Panama mine operated by First Quantum Minerals, has provided temporary support to embattled copper prices.
- The LME 3-month copper prices surged past the 8,500 per metric tonne threshold this week only to fall back to $8,420/mt as Panama protests blocked 1.5% of global copper supply.
- With Panamanian copper production being most probably suspended until the next Presidential elections in May 2024, further strikes such as MMG's recent industrial action in Peru might be the single most bullish factor for next year's copper outlook.
- Bouncing back from their annual trough in October, copper prices are expected to rise marginally in 2024 with the consensus analyst estimate coming in at $8,625 per metric tonne.
7. A Normalizing China Also Means Slower Growth Rates
- Softer commodity markets into the second half of 2023 have underscored the importance of China to the past years' bearish sentiment, although the next years might not see the same level of Chinese growth as before.
- Chinese oil demand is set to grow by 4% next year, halving from this year's roughly 8% year-on-year spike, with ongoing construction sector woes, EV penetration, and weak petrochemical margins all weighing on consumption.
- The slowing down of Chinese growth might be an even bigger issue for the metal markets as China accounts for a respective 60% and 50% of global iron ore and aluminum consumption globally.
- With China recording its first-ever quarterly deficit in foreign direct investment in Q3 this year (totaling $11.8 billion), the stage is set for Chinese domestic demand growth to slow down across the commodity spectrum.