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Oil markets spooked by lockdowns in China

Crude prices rebounded on Friday, recouping some losses as China’s COVID lockdowns once again become the main narrative in oil markets.

September 02, 2022.

Chinese weakness has become the main talking point for the past week. First, the country’s PMI for August recorded just 49.4, roughly in line with July, indicating that the long-awaited rebound in economic activity is still far from materializing. Second, the return of lockdowns in multimillion-dollar megacities like Shenzhen or Chengdu will inevitably weigh on oil demand because (again) no one really knows how long the restrictions will last. Political instability in Iraq has not caused an uptrend, just as the prospect of an Iranian nuclear deal persists without anyone seeing any picture of political guarantees. Until the OPEC+ meeting on September 5, China-driven demand fears will dominate the market narrative, seeing ICE Brent drop to $92 a barrel.

The EU is trying its luck with electricity price caps. Brussels is working on an electricity price cap that would limit the maximum price for generators running on wind, solar or nuclear power – under current EU rules the market price is set by the last power plant needed to meet demand, most often a gas-fired power plant, allowing lower-cost producers to cash in.

Germany charters the fifth FLNG terminal. The German government intends to charter another floating LNG terminal for the 2023/24 winter season, planning to place the 5 bcm per year FSRU off the north coast at Wilhelmshaven and operate it by E.ON (ETR:EOAN), Engie (EPA: ENGI) and Tree Energy Solutions.

Iran demands stronger US guarantees. Iranian Foreign Minister Hossein Amirabdollahian said Tehran was seeking stronger guarantees from the United States that the nuclear deal will work, including an explicit no-take clause from Washington as well as a shutdown. IAEA investigations into its nuclear program.

Gazprom savors the Turbine Blame Game. With Russia Gazprom (MCX:GAZP) halting gas flows through Nord Stream 1 for another round of maintenance, the company’s CEO spoke to the media, saying the “sanctions confusion” had prevented Siemens Energy from servicing the pipeline’s turbines, which potentially indicated new disturbances.

Qatar will build the largest blue ammonia plant in the world. QatarEnergy has announced that it will construct a 1.2 mtpa blue ammonia plant to be commissioned in early 2026, becoming the largest such project in the world, with approximately 1.5 mtpa of carbon dioxide. carbon stored and sequestered during the process.

Kazakhstan Production paralyzed by Kashagan Woes. Production from the giant Kashagan oilfield in Kazakhstan will remain around 100,000 bpd (about 20% of nominal capacity) at least until the end of September, following a gas leak discovered in early August.

Asian gasoline margins turn negative. Deepening diesel cracks and lower seasonal demand are putting the profitability of gasoline production at Asian refineries under pressure, with gasoline margins turning negative this week, just as refineries are maxed out, producing a lot of unnecessary gasoline.

Global warming is hampering Iranian nuclear production. With water temperatures exceeding 35 C (95 F) this summer, Iran’s only nuclear power plant in Bushehr is struggling to maintain production capacity because seawater from the Persian Gulf is too hot to cool the reactors.

Chinese coal stocks shine as power supply remains in the limelight. Betting that the Chinese authorities are prioritizing economic growth over environmental concerns, investors have recently mopped up Chinese coal stocks, with the country’s coal index having already jumped around 50% in 2022. to date, led by the largest producer Shenhua Energy (SHA: 601088).

Venezuela softens tone for Chevron role overhaul. Venezuelan Oil Minister Tareck El Aissami said the revival of Chevron’s (NYSE:CVX) operations in the Latin American country largely depend on the terms and conditions of new US licenses, suggesting he sees no problem with the US oil major playing a bigger role.

The Philippines wants to combine forces with China for exploration. Attempting to overcome territorial disputes with China, aggravated by a 2016 arbitration ruling that backed Manila, the Philippine government has expressed a willingness to open new talks with Beijing on joint oil and gas exploration in South China Sea.

The Chilean state hints at a compromise on lithium. Despite taking office with a program to nationalize the Chilean lithium industry, Chilean President Gabriel Boric said the country’s new tax bill was still under discussion with lithium producers, with the legislative motion still to be passed. next week in Congress.

American majors are fleeing California. Both ExxonMobil (NYSE:XOM) and Shell (LON:SHEL) sold their stakes in the Aera joint venture they operated in California’s San Joaquin Valley, with oil production of 125,000 bpd, to German asset manager IKAV for $4 billion.

Saudi Aramco is considering automotive investments. As French automaker Renault intends to separate its fossil fuel engine division from its EV division, it turns out that the mysterious oil company which plans to take a stake in the combustion engine business alongside the company chinese Geely (HKG:0175) is the Saudi state oil company Saudi Arabia (TADAWUL:2222).

By Tom Kool for

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