Oil bulls appear to have gained the upper hand this week as China's recovery continues and both the IEA and OPEC raised their global demand forecasts.
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Friday, January 20th, 2023
Brushing aside the massive inventory build in the US, the market is starting to fall for China’s demand rebound. Both OPEC and the IEA raised their global demand forecasts for 2023, arguing that the second half of this year would see rapid growth in Asian buying. So it looks like oil bulls have gained the upper hand despite some worrying economic data and refinery problems in the U.S.
IEA Expects Record Oil Demand in 2023. In its monthly oil report, the International Energy Agency said the lifting of coronavirus restrictions in China is set to propel global oil demand to its highest on record, soaring from its current 100 million b/d to almost 104 million b/d by the end of 2023.
Aramco Warns about Future Supply. The head of Saudi Aramco Amin Nasser warned that despite the relative balance in the oil markets currently, we are facing a substantial supply shortfall in the long term if global upstream investment does not start to surpass accelerating rates of natural decline.
Australia Asks China to Remove Trade Impediments. Amidst news of China scrapping its mandated ban on Australian coal exports, Australia’s Assistant Minister for Trade Tim Ayres called for the removal of all trade limitations on Australian exports (ranging from lobsters to grains).
Russia Exit Packs a Punch for German Major. Wintershall Dea, the energy arm of Germany’s chemical giant BASF (ETR:BAS), will take a $7.9 billion writedown as the company has decided to pull out of Russia, unable to legally separate its Russian business and seeing future options in Russia untenable.
Environmentalists Sound the Alarm over SPOT. Several environmental groups sued the United States to overturn its approval of Enterprise’s (NYSE:EPD) Sea Port Oil Terminal (SPOT) project which was slated to become the largest offshore export terminal in the US, capable of loading 2 million b/d.
Texas Power Grid Still Not Out of the Woods. Despite avoiding rolling blackouts this winter, the Dallas Federal Reserve stated that Texas’ electrical grid remains vulnerable to severe weather events, calling for the stringent enforcement of safeguards and more incentives to boost thermal power generation.
UK Largest Oil Producer Cuts Jobs. Arguing that the United Kingdom’s 75% tax rate on upstream companies, aggravated by the hiking of windfall tax to 35% recently, the largest UK oil and gas producer Harbour Energy (LON:HBR) said it will cut jobs and reevaluate its activities in the UK North Sea.
PEMEX’s Flaring Problem Gets Even Worse. Despite repeated pledges to halt large-scale flaring, Mexico’s national oil company PEMEX reportedly burnt off $342 million worth of gas and condensate at just two fields, Ixachi and Quesqui, over the course of the past three years.
Chesapeake Quits Southern Texas Oil Assets. US oil and gas firm Chesapeake Energy (NASDAQ:CHK) sold part of its operations in southern Texas to private equity-owned WildFire Energy for $1.43 billion in cash, seeking to focus on natural gas plays in Marcellus and Haynesville.
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SLB Enjoys the Russian Drilling Landscape. The oil services giant SLB (NYSE:SLB), formerly known as Schlumberger, boosted the performance of its Russia division by 25% last quarter as its main rivals have wound down their operations there.
Iron Ore Unsure About China’s Clampdown. Iron ore futures at the most-traded Dalian Commodity Exchange in China have been rangebound at $125 per metric tonne as Beijing has issued its third warning this month against excessive speculation in the markets, raising the specter of intervention.
Congo Renegotiates its China Minerals Deals. The Democratic Republic of Congo is reportedly close to overhauling a $6 billion infrastructure-for-minerals deal with China as the 2007 deal saw Chinese investors take a 68% stake in the cobalt and copper-rich Sicomines venture in exchange for roads and hospitals built.
French Strike Disrupts Energy Availability Again. As France became engulfed by a nationwide protest movement against President Macron’s pension reform, the country’s nuclear and hydropower availability dropped 12% compared to levels seen earlier in January, losing 5.4 GW of capacity.
UAE Doubles Down on African Solar. Only a couple days after the UAE’s renewable energy company Masdar signed a $2 billion solar deal with Zambia, it clinched another deal in Africa, agreeing to build two large-scale solar plants in Ethiopia with a combined capacity of 500 MW.
By Michael Kern for Oilprice.com
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And when you add to the China factor other market fundamentals such as a tight global oil market, a robust global demand and a shrinking global spare production capacity, no bearish forces can beat them.
That is why I am projecting that Brent crude oil price is headed towards $100 a barrel in the first or second quarter of this year and could even touch $105-$110 before the end of the year.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert