OPEC+ Paves the Way for 2025 Return of Crude

In the latest edition of the Numbers Report, we will take a look at some of the most interesting figures put out this week in the energy and metals sectors. Each week we'll dig into some data and provide a bit of explanation on what drives the numbers.
Let's take a look.

1. OPEC+ Rolls Over Voluntary Cuts, Paves the Way for 2025 Return of Crude

- OPEC+ extended their 2.2 million b/d voluntary crude production through Q3 2024, however the group has also charted a path to bring back those volumes back to the market from October 2024 onwards.
- The United Arab Emirates was the big winner of the June 2 meeting, taking place in Riyadh for the "Great Eight" of OPEC+ countries that took on voluntary production cuts, securing a quota increase of 300,000 b/d in 2025.
- Immediately after the meeting, Brent futures have shed some $3 per barrel and dipped below $80 per barrel for the first time since February, however they've recovered some lost territory over the past week.
- The next OPEC+ joint ministerial committee meeting is scheduled for August 1, discussing quota compliance and the outlook for demand, with the next ministerial meeting slated for December 1.

2. California Needs More Gas to Meet Surging Power Demand

- Forecasts for the US West Coast indicate California will be struggling with a scorching heat dome over the coming days, prompting a revival in the state's natural gas consumption on the back of peak air conditioning demand.
- Gas fired generation has been notably below last-year readings in California as solar plants were rising to prominence, however an early start to summer heat will send gas usage soaring across the CAISO.
- Solar energy has overtaken natural gas as the primary source of CAISO electricity generation since March, having risen 27% year-on-year to 771,000 MWh, however that is set to change in June-August.
- Natural gas will be key in meeting incremental power demand as solar usage tends to fall to zero at night and wind farms tend to decrease output in July-August due to low wind speeds.

3. Russia's Oil Revenues Soar as Kremlin Eyes $120 Billion of Oil Money in 2024

- Russia's oil revenues to the state budget soared 50% year-over-year as crude prices rose and the country adapted to international sanctions, coming in at 632 billion rubles last month ($7.1 billion).
- Moreover, Russia's government income could have been higher if the Kremlin weren't paying enormous subsidies to the nation's fuel producers, paying out more than $2 billion in May alone for domestic supplies of gasoline and diesel.
- As Ukraine's drone strikes have restricted Russia's refining capacity throughout this year, Russian oil exports have surged, especially to India which imported 2 million b/d of Russian oil in May alone.
- The Kremlin has agreed to extend Russia's participation in OPEC+ voluntary cuts in Q3, suggesting that oil revenues could decline as output is expected to decline by 471,000 b/d.

4. Mexico's New President To Focus on Renewables as Oil Falters

- Claudia Sheinbaum, the protégé of outgoing president Andres Manuel Lopez Obrador and a climate scientist by training, has become the first female president of Mexico, taking almost 60% of votes.
- Facing the biggest budget deficit in decades, Sheinbaum would need to balance a delicate line between her renewables ambition and Mexico's rapidly falling oil production, at 1.474 million b/d the lowest in 40 years.
- President-elect Sheinbaum has campaigned on the premise to lift the share of renewable energy in Mexico to 50% by the end of her term in 2030, currently relying predominantly on natural gas (55%).
- Smaller-scale rooftop solar projects and decentralized wind farms could be the most feasible way of ramping up renewables capacity as Pemex's $108 billion in debts and $28 billion in 2024 maturities alone make it an unlikely investor.

5. Could China Become the World's Top Hydrogen Producer?

- Dominating the wind turbine, solar cell and perhaps soon even the EV markets, China could also become the world leader in hydrogen technology, as Beijing sees it as a key element in its transition strategy.
- China has installed 1 GW of electrolyzer capacity last year, however most of its new capacity is still linked to fossil-fuel-based grey hydrogen, mostly coming from coal gasification or steam methane reforming.
- Rystad Energy projects that a further 2.5 GW of electrolyzer capacity will be built this year, equivalent to 220,000 tonnes of green hydrogen produced, most probably surpassing Beijing's 2025 production target already this year.
- Infrastructure might be lagging behind the ambition of green hydrogen electrolyzers, with China's oil and gas companies increasingly investing into long-distance hydrogen pipelines, most notably one connecting Inner Mongolia to Beijing.

6. China's Copper Stock Build Contradicts Market Optimism

- Chinese copper inventories have been building at a time when seasonally they should be edging lower, underscoring concerns about global copper demand only a few weeks after the metal hit a record $11,104/mt on the LME.
- Stockpiles of copper in Shanghai Futures Exchange warehouses ended May well above 300,000 metric tonnes, which is not the highest volume ever but by far the most for any end-of-May reading on record.
- Historically, Chinese copper processors have been ramping up activity into the summer after the spring stockpiling spree, and as domestic surcharge on copper (Yangshan premium) turned negative last month, demand seems to be really weak.
- The world's largest copper trader Trafigura said the recent surge in copper prices was not justified by real-world supply and demand, attributing the spike to record investment flows from market participants.

7. Renewables Have a New Enemy, Negative Power Prices

- European developers of renewable projects have started to face a new challenge, not from the fossil lobby or limited sunshine and wind, rather from generation exceeding the needs of Europe's consumers.
- Across Europe's four main economies, there have been already 529 hours of negative energy prices in January-May, a sixfold increase year-over-year as the initially Nordic phenomenon moved into continental Europe.
- Negative power prices will trigger power price cannibalization when investors will be reluctant to make new investments as they would not see adequate returns, with battery storage options still very limited in scope.
- Renewable energy sources currently account for 47% of Europe's power generation and are expected to rise to 66% by the end of this decade.

That's it for this week's Numbers Report. Thanks for reading, and we'll see you next week.