1. OPEC+ Sticks to Course as Focus Shifts to Overproducers
- The Joint Ministerial Monitoring Committee of OPEC+ has confirmed the oil group's current production targets, pushing back against increasing calls for a reversal of output cuts on the back of Brent hitting $90 per barrel.
- Compliance with stipulated production targets is becoming a major sticking point for OPEC+ members, with the JMMC asking Iraq and Kazakhstan to present detailed compensation plans on how they would cut output in Q2.
- In total, OPEC+ produced 34.5 million b/d in February according to Platts, some 170,000 b/d above current quotas, even though Saudi Arabia and Russia have been both producing within their quotas.
- As oil prices soar on the heels of Middle Eastern tensions, Ukrainian drone strikes, and improving demand, OPEC+ will not be meeting until June 1, its next planned in-person meeting, when it should also finetune current production targets.
2. Once a Rising Natural Gas Star, Egypt Becomes an LNG Importer
- Egypt, a country that has historically suffered from paralyzing power blackouts in the summer and managed to retain its gas self-sufficiency thanks to the Zohr gas field, has started importing LNG again.
- Expected to receive an IMF bailout in excess of $50 billion, Egypt's domestic natural gas production has been plummeting amidst structural declines, and even Zohr is expected to see its output drop by 30% from its 2021 peak…
1. OPEC+ Sticks to Course as Focus Shifts to Overproducers
- The Joint Ministerial Monitoring Committee of OPEC+ has confirmed the oil group's current production targets, pushing back against increasing calls for a reversal of output cuts on the back of Brent hitting $90 per barrel.
- Compliance with stipulated production targets is becoming a major sticking point for OPEC+ members, with the JMMC asking Iraq and Kazakhstan to present detailed compensation plans on how they would cut output in Q2.
- In total, OPEC+ produced 34.5 million b/d in February according to Platts, some 170,000 b/d above current quotas, even though Saudi Arabia and Russia have been both producing within their quotas.
- As oil prices soar on the heels of Middle Eastern tensions, Ukrainian drone strikes, and improving demand, OPEC+ will not be meeting until June 1, its next planned in-person meeting, when it should also finetune current production targets.
2. Once a Rising Natural Gas Star, Egypt Becomes an LNG Importer
- Egypt, a country that has historically suffered from paralyzing power blackouts in the summer and managed to retain its gas self-sufficiency thanks to the Zohr gas field, has started importing LNG again.
- Expected to receive an IMF bailout in excess of $50 billion, Egypt's domestic natural gas production has been plummeting amidst structural declines, and even Zohr is expected to see its output drop by 30% from its 2021 peak by the end of this year.
- Egypt last exported LNG on March 11, sending a cargo to Turkey's Dortyol, and the country's energy company ENGH is now reported to have bought at least one LNG shipment to be delivered to Jordan's Aqaba LNG terminal.
- 2024 is expected to be the hottest year on record in Egypt where natural gas is not only the main source of power generation but is also widely required in energy-intensive industries such as fertilizers.
3. Europe Faces a Bleak Refining Outlook Despite Stellar Margin Environment Now
- Despite exceptional margins seen over the past two years, the global refining system remains as fragile as it was during the COVID years with as much as 3.6 million b/d of capacity under high risk of closure.
- Wood Mackenzie estimates that some 19.95 million b/d of refining capacity could be shut by 2030, with almost half of it located in Europe where standalone catalytic cracking sites are still plentiful.
- As new refineries such as Nigeria's Dangote or Mexico's Dos Bocas increase the global supply of gasoline and limit Europe's export opportunities, the continent's gasoline surplus will trigger the above refinery consolidation.
- The last phase of China's refinery buildout might squeeze up to 7 independent refineries off the markets as Beijing prioritizes state-controlled refiners, simultaneously affecting Japanese refiners, too, as they are unlikely to compete with leaner Chinese oil firms.
4. White House Faces Difficult Choices in Venezuela
- The US government faces a tough decision ahead of the April 18 deadline for Venezuela's six-month sanctions waiver, with pressure building on the Biden administration to reimpose sanctions on Caracas.
- A list of 20 former US officials signed a letter urging the White House to reimpose sanctions for Maduro's blatant banning of opposition candidate Maria Corina Machado, although Brent prices are already above $90 per barrel so such a move could spark another price rally.
- Reportedly, the State Department is mulling alternative penalties that would punish Maduro's inner circle without impacting crude supply, wary that a sanctions snapback would just lure China back into Venezuela.
- According to Kpler data, the US has imported 165 kbd of Venezuelan crude in 2024 to date, with Valero topping the list of most active buyers, followed by Chevron and Phillips 66.
5. Global Power Traders Flock to Japan's Volatile Market
- Global trading companies are increasingly invested in Japan's electricity market as the post-COVID years have opened up futures trading, with electricity prices fully liberalized since Tokyo's 2016 reforms.
- Japanese electricity prices have been unprecedentedly volatile since the restarting of the country's nuclear facilities and recurring extreme weather conditions such as earthquakes and tropical cyclones.
- Mercuria is the latest trading firm to establish a power trading presence in Japan, joining Vitol, BP, or Engie, seeing the volume of electricity traded rise almost 15 times in Q1 2024 compared to pre-2016 levels.
- Whilst any company seeking to operate in the physical electricity market needs a permit from the trade ministry and might face hefty fines if their production misses forecasts, futures contracts don't need government approval and could be managed from abroad.
6. South Asia Might Offset Western World's Coal Decline
- South Asia is steadily becoming one of the pillars of incremental coal consumption as a rising population and soaring electricity needs prompt power generators to maximize coal usage.
- Coal is set to overtake natural gas as the primary source of electricity in Bangladesh, with power generators more than doubling coal generation in 2023 from 2022 to an all-time high of 17 TWh.
- Bangladesh has boosted coal imports from India but also increased its seaborne imports by 50% to a record 12.7 million tonnes last year, with authorities struggling to keep a red-hot economy that has been growing 6% per year in 2019-2023 fully electrified.
- With Australian coal trending around $130 per metric tonne, the per-unit cost of coal is half of imported LNG, so the likes of Bangladesh (and India) are expected to ramp up their coal usage even further down the line unless price of LNG collapses.
7. China's Control of Gallium Supplies Sends Prices Ballooning
- China's export restrictions on rare earth minerals gallium and germanium have sent their prices soaring, with gallium nearing its highest level since 2011 amidst restricted global supply.
- Used in defense and aerospace equipment, gallium exports are now subject to licensing requirements, as a consequence of which its prices shot up to $575 per kg delivered to Rotterdam, doubling since August 2023.
- China exported some 2,760 kg of gallium in January-February 2024, down 70% compared to 8,865 kg a year earlier, with Japan, South Korea, and Germany remaining the metal's largest buyers.
- The US Defense Department admitted last year that it holds no strategic stockpile of gallium, with China accounting for 94% of the world's combined gallium refining capacity.