Iran's Oil Production Rises Despite Sanctions

1. Guyana Takes Over European Oil Markets

- Guyanese crude exports to Europe hit an all-time high in February, moving to 432,000 b/d, as the continent’s buyers mopped up additional barrels coming from the recently launched Payara Gold stream.

- With the increasing flow of Guyanese cargoes, Europe’s own medium sour grade Johan Sverdrup, the largest producing field across the continent, has seen an unprecedented decline in its prices.

- Sverdrup differentials soared to multi-dollar premiums at the end of last year as Red Sea disruptions prompted Europe to buy locally, but now the Norwegian grade sells for a -$3 per barrel discount.

- Guyana is expected to produce more than 1 million b/d by late 2026, with production further boosted by the 250,000 b/d Yellowtail, 250,000 b/d Uaru and 250,000 b/d Whiptail projects.

2. China’s Coking Coal Industry Asks for State Protection

- Zhao Jianze, chairman of China’s largest coal miner, said the country’s coking coal industry needs state protection to reduce “disorderly competition” amidst flatlining prices, trending around ¥1,750 per metric tonne ($240/mt).

- With Zhao being a committee member at China’s consultative conference, his calls for limiting output and consolidating smaller coking coal producers into state-owned enterprises might resonate in Beijing.

- In contrast to thermal coal production where China keeps on hitting record after record, Chinese steelmakers are increasingly relying on coking coal imports, mostly from Australia.

- Chinese coking coal production was hindered by waves of government checks following a spate of fatal mining disasters across the country, with more than 50 casualties since September in Henan, Heilongjiang, and Shaanxi.

3. Iran’s Oil Production Stays Strong Despite Sanctions

- Pressure from the White House notwithstanding, Iranian oil production trends at its highest post-sanctions levels with crude-only output exceeding 3 million b/d since August 2023, prompting calls in the US for tighter sanctions enforcement.

- According to Kpler data, Iran’s seaborne oil exports have risen to 1.38 million b/d in January-February, up 17% compared to the same period last year, as China continues buying most of its exports.

- According to experts, the Biden administration is unlikely to get any more hawkish on Tehran to avoid escalating tensions in the Middle East and to keep the door open for renewed nuclear negotiations in 2025.

- Meanwhile, the US called on Iran to dilute all of the uranium it enriched to at least 60% purity, arguing that even if Tehran “downblends” its nuclear capacity, it still has enough material to fuel two nuclear weapons by IAEA standards.

4. Risk of Government Sanctions Prompts Carbon Price Rally in China

- China’s carbon allowances started rising to record highs as spot prices hit ¥83 per metric tonne ($11.6/mt), extending gains since the end of January to almost 20%.

- Whilst China’s carbon prices are still one-fifth of Europe’s, there is a sizable upside in them as Beijing will be launching its new interim regulations in May, reducing the volume of free allowances, and ratcheting up penalties for transgressors.

- Analysts believe that the price rally might not last beyond May, arguing that it is stemming from power producers that have not successfully completed their compliance in past years and now are panic-buying.

- China’s carbon market currently covers only the thermal power generation sector, with the refining, chemicals, steel, construction, and aviation sectors expected to be added in 2025.

5. Asia’s Diesel Heat Set to Cool Down

- Asia’s diesel cracks have been holding up nicely in 2024 so far, staying above $20 per barrel, but increased production from India and China will put middle distillate profitability under pressure.

- Chinese refiners have withheld their diesel production for the domestic markets to meet excess demand during the week-long Lunar New Year holidays, with exports ticking in at a mere 180 kbd, down 65% year-on-year.

- With peak holiday travel no longer restricting China’s sellers, March should see a much larger volume of Chinese diesel in the market, similar to India, a country that is gradually resuming diesel exports to Europe after Red Sea attacks halted that flow in January.

- The longer-term outlook for diesel cracks in Asia remains optimistic as Asia’s refinery maintenance season gets underway in April-May, curbing the supply of the product to markets.

6. Africa Pines for Higher LNG Supply

- Africa’s leading LNG producers – Algeria, Angola, Egypt, Libya, and Nigeria – are hoping to get their mojo back after several years of unimpressive stagnation, although each of them is facing their own set of headwinds.

- Nigeria has historically been the largest LNG exporter in Africa, however as the 2022 force majeure on LNG exports is still yet to be lifted, it posted its fourth consecutive year-on-year decline last year, supplying only 13.40 million tonnes.

- Egypt’s LNG exports have been mostly geared towards the winter season when domestic gas demand is weaker, however ever since Israel’s offshore gas fields stopped supplying the country’s export terminals, Egyptian LNG flows plunged to a mere one to two cargoes per month.

- Algeria and Angola have both posted solid year-on-year growth numbers but ultimately Africa’s LNG outlook depends on the health of European buying, with the Old Continent accounting for two-thirds of African exports.

7. Zinc Breaks Free from Gloom of Record Shorts

- Zinc has become one of the best-performing metals across the globe, having rebounded from record short positions on the London Metal Exchange on news of tighter supplies.

- China has been in the limelight this week, holding the consultative National People’s Congress, with the former central bank governor suggesting a new way to kickstart the country’s ailing property sector, with the government insuring pre-sale proceeds.

- Bullish sentiment of a Chinese recovery, with strong demand data, and South Korea’s Young Poong cutting refined zinc production at its Seokpo smelter have all added up to send zinc rallying to $2,540 per metric tonne.

- Even though analysts expect zinc to run into resistance above $2,600 per metric tonne, it seems that expectations of a zinc glut will not materialize as miners struggle to boost output.