Is China's Oil Buying Spree Over?

COVID Market Update

- Crude oil purchases by China appear to be hitting the brakes in July after record purchases in May for loadings in June, with analysts now concerned that the buying spree has lost momentum, with inventories now full. Some are still banking on China's small teapot refineries rushing to grab more imported crude while they can under license and before the government changes its mind. In the meantime, shipping data appears to indicate that China imported more than 20% less crude in June than it did in May.

- For June, Iran managed to sell its heavy crude oil at $36.26 per barrel in the mentioned month, up from $23.55 per barrel in May, according to Iranian media. Iranian sources also put average Iranian crude output for Q2 2020 at 1.958 million bpd, down just over 100,000 bpd from Q1 2020.

- In Latin America, oil and gas companies will be cutting over $8 billion in capex for this year, slashing guidance by about 30%, with Mexican state-run Pemex leading the capex cut push with the lion's share of that.

- California Resources, the largest oil driller in the state, has filed for Chapter 11 bankruptcy protection, becoming the latest casualty of the oil price crash and COVID demand culling. The company said it had agreed a restructuring plan with most of its shareholders, which will see its debt pile significantly reduced, by about $5 billion.

Politics, Geopolitics & Conflict

- The Libyan Central Bank is getting audited in a long-awaited move that General Haftar was pushing for months ago, arguing that the country's oil revenues were funding various militias supporting the Government of National Accord (GNA). This audit is now one condition for Haftar to lift the blockade on Libya's oil production and exports.

- In Yemen, Houthi rebels have agreed to allow the UN to access an oil tanker that's been stranded off the Red Sea coast with 1.1 million barrels of crude for over a year, threatening to explode after decaying for so long.

- Still trying for an 11th-hour attempt at stopping Russia's Nord Stream 2 pipeline, US Secretary of State Mike Pompeo this week threatened new sanctions against those participating in the construction of the final leg to Germany. They will also add Nord Stream 2 to the "Countering America's Adversaries Through Sanction Act", in an additional move to attempt to thwart the pipeline--or at least delay it again.

- Also in the sanctions corner, the US has delayed a measure that would prevent bondholders from seizing majority ownership of US-based CITGO (refiner and marketer). The move temporarily stops bondholders from taking CITGO in collateral, as promised by Venezuela's Maduro regime. Venezuela's state-run PDVSA had offered up CITGO as collateral in an earlier bond sale. The measure has now been delayed until mid-October.

- Feeling rather optimistic about an eventual end to sanctions, Iran last weekend signed a $460-million deal for the development of its Yaran oilfield. Yaran is estimated to hold 550 million barrels of oil in place. Yaran is a shared field with Iraq, which will also play into the proxy war in that venue between Iran and the United States.

- Democratic presidential hopeful Joe Biden has promised $2 trillion in spending over four years for clean energy development, with the goal of pollution-free power by 2035 and net-zero carbon emissions by 2050.

Discovery & Development

- In Guyana, where ExxonMobil is still tearing it up with discoveries (16 in total) and new production, one discovery--Payara is facing potential losses due to delays in signing off on the development as the Guyana underwent chaotic elections and new government formation. The project should have ideally been signed off last year, and the late start may have already cost the field 50 million barrels in production based on Rystad figures. The field was originally slated to go online in 2023, and development approval is still in limbo.

- Hungarian-owned MOL Group has announced a sizable oil and gas discovery in Pakistan's Tal Block, making for the company's 10th discovery in this same block. MOL is the operator but only has an 8.4% stake in the block. The bigger stakeholders are Pakistan Oilfields Limited, Pakistan Petroleum Limited and Oil and Gas Development Company (OGDC).

Deals, M&A, Cancellations

- French energy major Total SA is reportedly looking to sell its 25.7% stake in British North Sea nat gas pipeline SEAL for a potential $200 million. The pipeline is operated by Shell. Total has not confirmed talks with interested parties as of yet.

- The government of Kuwait has canceled plans to build the $1.2-billion Al-Dibdibah solar PV project within the Al-Shagaya Renewable Energy Park due to the coronavirus pandemic. The massive project was undertaken by KPC's subsidiary Kuwait National Petroleum Company (KNPC) in 2018 and was planned to become operational in February 2021.

- On the EV scene--and a time when Tesla is defying the market even more than usual--another rival in the form of Fisker Inc is emerging. It's hoping to latch onto the ESG investing megatrend and catch some of that Tesla momentum by merging with Spartan Energy Acquisition Corp (a special purpose acquisition company). The deal values Fisker at nearly $3 billion and is slated to close in Q4. This is definitely one IPO to keep an eye on.