Russia Redirects Oil Product Exports To Africa

1. UAE to Launch Another Exchange-Traded Benchmark

- ADNOC, the national oil company of the UAE, is set to launch a new futures contract for its Upper Zakum grade in the second half of 2023, to be traded on the ICE Futures Abu Dhabi exchange just like its main export crude, Murban.

- Seeking to avoid dependence on the Oman and Dubai contracts, ADNOC wants to reflect the heavier and sourer quality of Upper Zakum, traditionally priced at a sizable discount to Murban.

- The medium sour crude feeding Upper Zakum is located in shallow waters offshore UAE and it is developed through a web of artificial islands and the barrels are piped to the export terminal in Zirku island.

- Whilst trading volumes of IFAD Murban pale in comparison to ICE Brent, they have nevertheless found their space, with daily trades averaging 8,277 contracts so far in 2023.

2. January Brings EV Sales Collapse as Government Incentives Fade

- Sales of electric vehicles (EV) have experienced one of their most drastic month-on-month declines on record in January, halting a consistent upward trajectory as government subsidies taper out.

- Rystad Energy data indicates 672,000 EVs being sold in January, half of December 2022 sales, seeing the share of electric vehicles in passenger car
sales tumble to a mere 14%.

- Many European countries saw government subsidies run out by the end of 2022 – in Germany sales dropped by a third to 27,000 units and even in electric-friendly Norway sales have plunged as EV taxation changed to the upside.

- Even China witnessed a month-on-month decline of 50%, corroborating industry expectations that the growth of EV sales will slow down to 8 million units this year despite prices edging lower.

3. Russian Product Exports Shift to Africa

- Following the introduction of the EU import ban and the product price caps for respective categories, Russian product exports dropped by 20% in February to 2.15 million b/d.

- Africa is emerging as a new destination for Russian products, especially diesel the flows of which soared to 440,000 b/d as new buyers emerged in Morocco, Algeria, Tunisia, Ghana, and Egypt.

- There seems to be no illicit trading of Russian products into EU countries, so ship-to-ship operations in European waters off of Spain’s Ceuta or Greece’s Kalamata remain the only interaction between the two sides.

- In contrast to products, Russia’s crude exports have remained resilient in February and averaged 3.31 million b/d (some 200, 000 b/d above the 2022 average) thanks to firm Indian and Chinese demand.

4. Turning Away from Coal, Australia Confronts Renewable Dilemma

- The Australian Energy Market Commission has started public consultations on the prospects of generation inertia, a process when coal plant turbines keep revolving even when the
fuel stops burning.

- The problem is that the country’s transition towards renewables, which trigger no inertia and the turbines stop almost instantaneously, did not account for generation losses on the back of insufficient inertia.

- Approximately 51% of Australia’s electricity generation is coming from coal, declining for five consecutive years, with renewables accounting for 23% and natural gas for 18% of the total.

- The government is looking into synchronous condensers, emulating the spinning of turbines without greenhouse gases, or battery storage for potential solutions.

5. Wheat Prices Subdued Amidst Grain Deal Headwinds

- Wheat prices have trended within the $300-400 per metric tonne bandwidth throughout 2023 to date, easing fears that the ramifications of the Russia-Ukraine war will keep global supply hampered.

- The price decline took place amidst record harvests in Russia and Australia and was also capped by falling bulk freight rates that have fallen back to lows last seen in mid-2020.

- S&P Global expects wheat prices to decline further on the back of production increases in Australia, Canada, and Russia, with the USDA expecting a slight increase in global output to 783.8 million tonnes in 2022-2023.

- The current phase of the Ukraine grain deal ends on March 18 and Russia has been increasingly conditioning its further participation on sanctions limiting its own grain and fertilizer exports.

6. Tesla Efficiency Savings Decimate Chinese Mining Stocks

- The surprise announcement that EV carmaker Tesla will be dropping the use of rare earth minerals has triggered a massive sell-off of Chinese mining companies such as JL Mag Rare-Earth or Jiangsu Huahong.

- Colin Campbell, a Tesla official, stated that the company has developed a permanent magnet motor, avoiding an overreliance on China which dominates the rare earth markets.

- Simultaneously, Tesla also purports to have developed its proprietary transistor package that uses 75% less silicon carbide than previously, triggering a sell-off in Chinese semiconductor stocks, too.

- Tesla’s Investor Day and the oft-mulled Master Plan Three focused on sustainability and the overall reduction of fossil fuel consumption, also announcing that the carmaker will build a new gigafactory in Nuevo Leon, Mexico for its next-generation vehicles.

7. India Heatwaves a Bad Omen for Coal Inventories

- India has experienced the warmest February since 1901, with monthly average temperatures rising to 30° C, increasing the risks of power shortages and jeopardizing this year’s wheat crop.

- Understanding that India is one of the most vulnerable countries to heatwaves, the government has asked coal-fuelled power plants to operate at full capacity during summer amidst rising demand from air conditioning and irrigation pumps.

- India’s winter power demand levels have been tantalizingly close to the record highs seen in the summer months of 2022 and will surpass it by March-April, with this year’s peak expected to touch 230 GW.

- As coal represents 70% of electricity generation across the country, the government mandated power stations to stockpile 45 million tons by the end of March – current inventory levels are significantly below that mark.