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Tom Kool

Tom Kool

Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations

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Oil Markets Spooked By China’s Lockdowns

Crude prices bounced on Friday, recuperating some losses as China's COVID lockdowns become the main narrative in oil markets again.

September 02, 2022.

Chinese weakness has become the key talking point of the past week. First, the country’s PMI index for August recorded a mere 49.4, roughly in line with July, indicating that the much-anticipated economic activity rebound is still far from becoming real. Second, the return of lockdowns in multi-million megapolises such as Shenzhen or Chengdu will inevitably weigh on oil demand as (once again) no one really knows how long the restrictions will last. Political instability in Iraq has failed to bring about any bullish trend, just as the prospect of an Iran nuclear deal keeps on lingering around without anyone seeing the smaller picture of political guarantees. Until OPEC+ meets on September 05, China-driven demand fears will lead the market narrative, seeing ICE Brent down at $92 per barrel.

EU Tries Its Luck with Power Price Cap. Brussels is working on an electricity price cap that would limit the maximum price for generators who run on wind, solar or nuclear – under current EU rules the market price is set by the last power plant needed to meet demand, most often a gas one, allowing lower-cost generators to cash in.  

Germany Charters Fifth FLNG Terminal. The German government intends to charter another floating LNG terminal for the winter season of 2023/24, planning to place the 5 bcm per year FSRU off the northern coast in Wilhelmshaven and have it operated by E.ON (ETR:EOAN), Engie (EPA:ENGI) and Tree Energy Solutions. Related: Is Dodgy Demand Data Driving Oil Prices Lower?

Iran Demands Stronger U.S. Guarantees. Iran’s foreign minister Hossein Amirabdollahian said that Tehran is seeking stronger guarantees from the US to make the nuclear deal work, including an explicit no-snapback clause from Washington as well as a halt to IAEA probes into its nuclear program.

Gazprom Savors the Turbine Blame Game. With Russia’s Gazprom (MCX:GAZP) halting gas flows via Nord Stream 1 for another round of maintenance, the company CEO took to the media, saying that ‘sanctions confusion’ resulted in Siemens Energy not being able to service the pipeline’s turbines, potentially pointing towards further disruptions.

Qatar to Build World’s Largest Blue Ammonia Plant. QatarEnergy announced it would build a 1.2mtpa blue ammonia plant expected to be commissioned in early 2026, becoming the largest such project worldwide, with some 1.5mtpa of carbon dioxide stored and sequestered in the process.

Kazakhstan Production Hamstrung by Kashagan Woes. Output at Kazakhstan’s giant Kashagan oilfield will remain around 100,000 b/d (approximately 20% of nameplate capacity) at least until the end of September, following a gas leak discovered in early August. 

Asian Gasoline Margins Turn Negative. Strengthening diesel cracks and ebbing seasonal demand are putting the profitability of gasoline production at Asian refineries under pressure with gasoline margins turning negative this week, just as refinery runs are running at maximum, yielding a lot of unneeded gasoline.

Global Warming Hinders Iranian Nuclear Generation. With water temperatures exceeding 35 C (95 F) this summer, Iran’s only nuclear power plant in Bushehr is struggling to maintain its production capacity as the seawater in the Persian Gulf is too warm to cool down reactors.

Chinese Coal Stocks Shine as Power Supply Stays in Limelight. Betting on China’s authorities prioritizing economic growth over environmental concerns, investors have been mopping up Chinese coal stocks recently, with the country’s coal index surging some 50% in 2022 to date already, spearheaded by top producer Shenhua Energy (SHA:601088).

Venezuela Softens Tone for Chevron Role Revamp. Venezuela’s oil minister Tareck El Aissami said that the relaunching of Chevron’s (NYSE:CVX) operations in the Latin American country depends largely on the terms and conditions of new U.S. licences, hinting that it does not see an issue with the US oil major taking a larger role.

Philippines Wants to Combine Forces with China on Exploration. Trying to overcome territorial disputes with China, aggravated by a 2016 arbitration ruling that backed Manila, the Philippines’ government has voiced its readiness to open new talks with Beijing on joint oil and gas exploration in the South China Sea.

Chilean State Hints at Lithium Compromise. Despite coming into office with an agenda of nationalizing Chile’s lithium industry, the Chilean President Gabriel Boric said the country’s new tax law draft is still up for debate with lithium producers as the legislative motion is set to be voted upon next week in Congress.

U.S. Majors Flee California. Both ExxonMobil (NYSE:XOM) and Shell (LON:SHEL) have sold their stakes in the Aera joint venture that they operated in California’s San Joaquin Valley, with oil production at 125,000 b/d, to German asset manager IKAV for $4 billion.

Saudi Aramco Mulls Automotive Investments. As French carmaker Renault intends to separate its fossil-fuel engine business unit from its EV division, it turns out that the mystery oil company that is mulling to take a stake in the thermal engine business alongside Chinese firm Geely (HKG:0175) is the Saudi state oil company Saudi Aramco (TADAWUL:2222).

By Tom Kool for Oilprice.com

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