U.S. Oil Majors Are Outperforming Their European Counterparts

1. US Oil Majors Pull Ahead of Their European Peers

- As European oil companies press ahead with their renewable energy projects and adapt to continent-wide windfall taxes, US oil majors have been outperforming their peers in the high-price environment of the past 12 months.

- While Shell’s 2022 net profits were comparable to ExxonMobil and Chevron, US majors trade at roughly 6 times their expected EBITDA for 2023, twice the average of Europeans.

- This discrepancy has fueled speculation across the Atlantic Basin, boosted by a Citi analytical report, that Chevron or Exxon could acquire some of the European majors.

- However, with US shareholders focusing on high returns and solid dividends and European investors fearful of becoming one-dimensional again, the two sides would most probably each go their own way.

2. Asia Reclaims Its Spot As Top LNG Destination

- Europe’s warmer-than-usual weather has been depressing natural gas prices, seeing Asian spot LNG prices surpass Europe for the first time since January 2022, despite trading around 20 per mmBtu.

- Europe has become a theatre of war between different pricing bases, with the traditionally exchange-traded TTF trading some €4-5/MWh (at €60/MWh) above the EU-appraised LNG reference price.

- As more Asian countries get comfortable with current spot prices, buyers in Thailand, India, and Bangladesh have swiftly ramped up their buy tenders after months of inaction.

- With northern China, the Korean peninsula, and Japan seeing record-cold temperatures, it is only a question of time before Northeast Asia sees LNG demand climb.

3. PDVSA Shakeup Halts Most of Venezuela’s Oil Exports

- Venezuelan oil exports have plunged to the lowest readings since October 2020 as the state-owned PDVSA remains embroiled in an across-the-board internal audit of supply contracts.

- The new chief executive of PDVSA Pedro Tellechea changed the terms for buyers of Venezuelan crude, demanding prepayment ahead of a given cargo’s loading.

- Several already loaded cargoes, as well as lined-up tankers awaiting their turn, have been forced to freeze loadings until the sale contracts are amended and pre-paid funds are received.

- Oil coming from Chevron’s joint ventures, as well as swap deliveries with Cuba’s Cubametales and Iran’s state company NICO were not affected by the export halt.

4. High Fuel Prices Nudge Europeans Toward EVs

- For the first time in history, the market share of gasoline and diesel cars sold in Q4 2022 slipped below 50% in Europe, meaning most new purchases were of fully electric or hybrid vehicles.

- Diesel sales have been suffering the most as new registrations fell to an unprecedentedly low 12.6% of the market, with gasoline car sales accounting for 33% of all purchases.

- Whilst hybrid cars represent almost 23% of the new sales and remain the largest EV category in absolute terms, the rapid growth of fully electric EVs led by Germany and the UK put serious pressure on HEVs.

- According to S&P Global forecasts, the electrification of Europe’s passenger fleet will displace some 1.4 million b/d of gasoline and diesel demand in Western Europe alone.

5. Asian Demand for Wind Power Higher than Installation Capacity

- The surge in Asia’s offshore wind demand has led to an unexpected problem, a lack of vessels capable of installing wind turbines in open seas, that might curb the projects’ roll-out.

- At least until 2027, Asia will lead the planet in installed offshore capacity as the currently installed capacity of 0.1 GW is set to skyrocket to just south of 50 GW by the end of this decade.

- The main driver of change, China, reportedly has 84 ships capable of installing wind turbines, although most can only handle small turbines as they are retrofitted oil and gas tugboats and support ships.

- According to industry estimates, the demand for commissioning service operation vessels (CSOVs) will outstrip supply by more than 145 ships, from roughly 30 currently.

6. Can Soaring Solar Kickstart the Perovskite Revolution?

- Both the United States and the European Union are supporting and aiding the proliferation of solar energy, all while hoping to get rid of overdependence on Chinese silicon wafers.

- The massive amounts of money flowing into solar should help perovskite materials get traction as tandem cells (combining silicon with perovskite metal) could increase solar panels’ conversion limits from 29% to potentially around 43%.

- Higher cell efficiencies would also result in less metal required for the production of cells, with much thinner perovskite layers using around 100 times less material than silicon.

- There remains one huge hurdle for perovskite cells, namely their quicker degradation which could be caused by either moisture or high temperatures.

7. Jet Fuel Troubles Are Brewing on the US East Coast

- US middle distillate stocks remain well below the 5-year average as Gulf Coast refiners impacted by the cold blast in late December struggle to regain their mojo, and there is now a new worry emerging, soaring jet fuel prices.

- Even though jet fuel is part of the same distillate pool as diesel, its pricing in PADD 1 and New York specifically has been a recurring issue recently with another spike coming our way.

- NY jet fuel prices are currently 70% more expensive than diesel, quite a contrast to most of last year when diesel traded at a premium and was considered to be the scarce distillate.

- With the IEA expecting jet fuel to be the biggest driver of oil demand growth in 2023 and Chinese kerosene demand already surging 80% compared to 2022 during the Lunar New Year, replenishing NY stocks might not be easy.