Energy, (Geo)Politics & Money - 2024 March 14
Non-partisan, objective & neutral analysis where global developments in energy, business & geopolitics intersect & curated from leading global sources & resources.
Welcome to EPM, where we take our daily look at the interconnected worlds of Energy, (Geo)Politics and Money. Curated from the world’s leading sources of information, we provide you both the information and the objective, neutral commentary that you need to make sense of it all – and beat the market.
In this roundup, we look at:
The view that oil prices could “rally” over the summer months; where EPM explains why we disagree
Saudi Arabia’s continued efforts to deliver a secondary share sale in Aramco
The problems in China’s commercial real estate sector, where distressed sales made up more than a fifth of deals in 2023
Russia’s success in outproducing the U.S. and Europe in artillery shells, three-to-one
The secret talks between the U.S. and Iran in Oman earlier this year
Shell’s decision to lower its target for reducing the intensity of its overall carbon emissions by 2030
The adoption of a Net Zero by 2050 target by Mexico’s state oil company Pemex
The view that the global lithium industry is so interwoven with Chinese capital, that it will be impossible to remove Chinese companies from it
Lithium mining in Bolivia by @alschim at https://unsplash.com
General Energy News
CRUDE PRICES TO RALLY OVER THE SUMMER
Morgan Stanley’s main oil analyst Martijn Rats believes oil prices could rally over the summer period, writes CNBC. Brent crude futures for May delivery are trading around $83 a barrel at present, while WTI stands around $79. Rats said
There is a view in the market that the non-OPEC producers can meet all of the demand growth this year and therefore there isn’t much incremental room for OPEC oil and that means you rely on continued OPEC cuts. At the moment we are going through oil refinery maintenance so [this] is always a bit of a soft part of the year but I think as the summer driving season unfolds, inventories draw…
And prices could find support in this. EPM wishes to add that we don’t like forecasts that start with “could”. Anything “could”, after all. But with current market conditions as they are, ample spare capacity being kept of the market by OPEC+, higher summer demand would naturally provide support to prices, we agree. “Rally” is not the word we would use to describe this support, however. A rally would likely trigger a call upon OPEC to add production again, and thereby effectively pre-empt it.
SECOND ROUND OF ARAMCO SHARES TO BE FLOATED
Saudi Arabia is pushing ahead with one of the largest stock offerings in recent years, writes Bloomberg. The country is in talks to add top Wall Street banks for a secondary share sale in Aramco, and is planning to hire JPMorgan Chase & Co. as one of the main underwriters to the offering. Bank of America Corp. and Morgan Stanley are also contending for lead roles on the deal, which could raise as much as $20 billion. It has already lined up Citigroup Inc., Goldman Sachs Group Inc. and HSBC Holdings Plc to work on the offering, Bloomberg News reported last month. Boutique bank Moelis & Co. has been acting as a financial adviser to help pick underwriters for the deal.
Macroeconomics
CHINA REAL ESTATE WOES EXTEND TO COMMERCIAL PROPERTIES
China’s real estate problems are not limited to the residential sector. Distressed sales made up more than a fifth of Chinese commercial real estate deals in 2023, writes Nikkei Asia. Overall sales of offices, factories, stores, hotels, apartments, senior housing and other commercial properties totaled $38.6 billion, down from $60.3 billion as recently as 2021. Distressed sales, defined as those involving properties put into receivership, accounted for more than 20% compared to 11% in 2022 and 9% in 2019. Government-backed entities and insurers were active buyers of Chinese commercial real estate, which EPM notes is probably on the basis of a policy instruction in order to prevent a crash in prices.
Geopolitics
RUSSIA PRODUCES 3X MORE ARTILLERY SHELLS THAN THE WEST
Russia appears on track to produce nearly three times more artillery munitions than the U.S. and Europe, writes CNN. Russia is producing about 250,000 artillery munitions per month, or about 3 million a year, according to NATO intelligence estimates. Collectively, the U.S. and Europe have the capacity to generate only about 1.2 million munitions annually to send to Kyiv, a senior European intelligence official told CNN. Russia is running artillery factories “24/7” on rotating 12-hour shifts, the NATO official said. About 3.5 million Russians now work in the defense sector, up from somewhere between 2 and 2.5 million before the war. Russia is also importing ammunition: Iran sent at least 300,000 artillery shells last year — “probably more than that,” the official said — and North Korea provided at least 6,700 containers of ammunition carrying millions of shells. Russia has “put everything they have in the game,” the intelligence official said. “Their war machine works in full gear.”
U.S. AND IRAN HELD SECRET TALKS TO CONTROL HOUTHIs
The U.S. has held secret talks with Iran this year in a bid to convince Tehran to use its influence over Yemen’s Houthi movement to end attacks on ships in the Red Sea, writes the Financial Times. The indirect negotiations took place in Oman in January. The U.S. delegation was led by the White House’s Middle East adviser Brett McGurk and its Iran envoy Abram Paley. Iranian deputy foreign minister Ali Bagheri Kani, who is also Tehran’s top nuclear negotiator, represented the Islamic republic. Omani officials shuttled between the Iranian and American representatives so they did not speak directly. This revelation should not surprise any EPM readers, as we have consistently said the U.S. and Iran are talking in order to avoid an open confrontation between the two. This insight is what enabled us to correctly forecast that an escalation of the conflict in the Middle East would not happen in January and February of this year, which was a contrarian position at that time that we hope benefited our active readers in the market.
Energy Transition & Technology News
SHELL LOWERS CARBON INTENSITY TARGETS FOR 2030
Shell has lowered its target for reducing the intensity of its overall carbon emissions by 2030, writes Reuters. In an annual update on its energy transition strategy, the company said it will target a 15-20% reduction in net carbon intensity of its energy products by 2030 compared with 2016 intensity levels. It had previously aimed for a 20% cut. Shell reaffirmed its ambition to become a net-zero emitter by 2050. "Given the focus on value, we expect lower total growth of power sales to 2030, which has led to an update to our net carbon intensity target", the company said. Shell’s updated Energy Transition Strategy can be accessed here.
PEMEX ADOPTS NET ZERO BY 2050 PLAN
Mexico’s state oil company Pemex has adopted a Net Zero by 2050 target, writes Bloomberg. According to a company sustainability plan released Wednesday night, it will cut methane emissions by 30% over the next six years, on a path towards zero emissions by 2050. Pemex is also promising to stop all gas flaring by 2030, improve its emissions monitoring process and reduce its water use. The company says it will need to invest as much as 12% of its capital expenditure to meet its emissions reductions target from 2025 through 2030.
LITHIUM SUPPLY CHAIN DOMINATED BY CHINESE COMPANIES
The global lithium industry is so interwoven with Chinese capital now that it’s going to be impossible to remove Chinese companies from it, writes Bloomberg. China has built up dominant control in many of the world’s most important mines, and due to its leadership position in battery technology, it is also the leader in lithium imports. Therefore, if developed democracies want to secure the lithium they need to decarbonize their economies, they’re going to have to get comfortable with Beijing as not just a rival, but a partner, Bloomberg concludes.