Is There a Future for California's Oil Industry?

1. Exxon Retains Its Pole Position as Most Profitable Exchange-Traded Major

- US major ExxonMobil remains the most profitable exchange-traded oil company in the world after a better-than-expected Q4 net income of $7.63 billion, bringing its full-year results to $36 billion.

- Saudi Aramco’s quarterly profits are still comparable to Exxon’s full-year ones, raking in $94.5 billion in January-September, but Aramco is only traded at Saudi Arabia’s Tadawul exchange.

- Amidst lower flat prices and refinery margins, share buybacks have been the key tenet of oil majors’ Q1 2024 pledges – BP and Shell vowed to buy back $3.5 billion in Q1 and TotalEnergies promised $2 billion.

- Whilst ExxonMobil’s buyback pledges will be ramped up should the Pioneer acquisition be closed on time in Q2, leaving Norway’s Equinor as the only oil major to cut its payouts from $17 billion in 2023 to $14 billion this year due to its natural gas bias.

2. The Middle East Inaugurates Another Greenfield Refinery

- For most of 2023, industry watchers have been focused on the commissioning of Kuwait’s 615,000 b/d Al Zour mega refinery, however, this year will see another new downstream addition in the Middle East, Oman’s Duqm refinery.

- Boasting a capacity of 230,000 b/d, Duqm was officially launched this week following several months of trial runs, marking the wave of Middle Eastern refinery expansion.

- The refinery’s diesel yield will be a whopping 56%, suggesting that Middle Eastern diesel exports to Europe should increase even further, although it could also target the booming growth in East Africa.

- A joint venture between Oman and Kuwait, Duqm is configured to run on a combined diet of Oman Blend and Kuwait Export Crude, curbing the number of marketable crude volumes for both countries.

3. China Leads Global Expansion of EVs Despite January Sales Collapse

- Electric vehicles are set for another year-on-year increase in 2024, with Rystad predicting that 17.5 million EVs will be sold this year, an 18% increase over 2023 readings and China will account for two-thirds of that.

- Seasonally, January is one of the weakest months for purchasing activity, China’s sales of new EVs fell a precipitous 39% month-on-month in January to 729,000 units, simultaneously to production plunging 33% lower to 787,000 units, as sellers rolled back discounts before the Lunar New Year.

- The share of EVs in new car sales is set to increase from 19% to 21% globally, but China’s rapid growth will not be matched elsewhere with European EV demand slowing down and US demand trending sideways in H2 2023.

- Conventional vehicles accounted for 84% of the US light-duty market in 2023, with the share of EVs increasing from 12.9% in 2022 to 16.3% last year, with hybrids remaining the most popular option.

4. Is There a Future for California Oil Production?

- US oil producer California Resources Corp (NYSE:CRC) agreed to buy regional producer Aera Energy in a $2.1 billion deal including debt, creating the largest oil and gas company in California.

- This might come as a surprise after oil majors have turned their backs on California, a state that has effectively stopped approving new well permits and pledged to phase out oil drilling by 2045.

- Aera Energy used to be a joint venture held by ExxonMobil and Shell, however the two have sold their stakes to the German asset management firm IKAV and the Canada Pension Plan Investment Board.

- Ten years ago, California’s crude production averaged around 550,000 b/d, by now, however, it comes in only slightly above the 300,000 b/d mark, despite retaining its spot as the second-largest energy-consuming state across the US.

5. Buyback Magic Not Enough to Halt Chinese Solar Slump

- Pressured by plunging solar panel costs and increased competition, Chinese solar panel producers have resorted to share buybacks to halt the calamitous fall in their market valuations.

- Longi Green Technologies announced plans to repurchase ¥600 million worth ($85 million) of its Shanghai-listed shares this week, with solar peer Tongwei mulling an even bigger ¥2 billion buyback ($280 million).

- Longi Green’s shares fell by a whopping 55% over the past 12 months and posted only a moderate 5% increase this week, indicating that fears of 2024 being a year of brutal consolidation might be true.

- Simultaneously, European solar panel producers have been asking the EU to limit Chinese access to the continental market, saying half of solar manufacturing capacity in Europe could be shut in 2024.

6. Indonesia’s Domestic Coal Boom Will Cap Exports

- Indonesia is set to consolidate its standing as the world’s top coal exporter, having exported a whopping 511 million tonnes, but it will need to accommodate its rapidly rising power consumption first.

- China has been the largest export outlet for Indonesian coal producers, buying 221 million tonnes or 44% of all exports, highlighting the almost exclusive Asian focus of Indonesia as 99% of all supplies stayed within the Asian continent.

- As several new nickel smelters are expected to come online in Indonesia this year, with coal used both as a direct reductant and as a source of electricity generation, at least 12% of Indonesian coal production will go towards the nickel industry.

- Jakarta has set a 710-million-tonne production target for 2024, however with coal-powered generation rising by 5% year-on-year and nickel refining roaring back to strength, exports are set to decline to 450 million tonnes.

7. Shipping Executives Fret About Deteriorating Tanker Security

- Top officials of shipping majors A.P. Moller-Maersk and Norden complained that the threat level in the Red Sea and the wider region continues to escalate, with no clear line of sight on how safe passage could be guaranteed.

- This comes after Japan’s shipping giant Mitsui OSK said diversions around the Cape of Good Hope could last for a year, with Houthi attacks aggravated by a simultaneous uptick in Somali piracy.

- Yemen’s Houthis have stated that they will further escalate attacks if the Israeli occupation of Gaza does not stop, hitting two ships this week, the Greek-owned Star Nasia and the British-owned Morning Tide.

- Maersk (CPH:MAERSK) warned that Red Sea disruptions did not lead to a corresponding jump in freight rates, with its Q4 earnings triggering a 15% day-on-day slump and prompting the Danish shipper to suspend share buybacks.