Energy, Politics & Money - 04 April 2023
Independent, objective, and politically neutral analysis of global developments curated from sources covering the world of energy, geopolitics, and investment.
In this roundup, we take a closer look at the fallout from OPEC+’s surprise decision. It is now clear that indeed, as we mentioned yesterday, their decision was triggered by a fear of the impact the banking crisis would have on the global economy, and, thereby, lowering crude oil demand. In and off itself, this viewpoint supports a decrease in supply to prevent a price decrease. The reason OPEC+ purposely surprised the world with its decision was based on speculator action, who were taking positions based on the view oil demand would disappoint going forward. They were increasing markedly short positions on oil, which would push the price OPEC countries received for their oil down. The surprise is how OPEC+ took action to “punish” speculators, something Saudi Arabia in particular has said it is eager to do whenever traders speculate on a price decrease.
Furthermore, we look at:
The renewal of insurance for the Nordstream pipelines, which indicates that its revival has not been ruled out after the sabotage attack
Cold water on the idea the petrodollar is in terminal decline following a Chinese assault
China’s lead in the race to develop replacements for the lithium-ion battery
The easing of Europe's energy supply concerns as strong LNG deliveries and lower demand helped push gas and power prices close to pre-crisis levels
An appraisal of Sultan Al Jaber, CEO of ADNOC and Chair for COP28
And, a deep dive, into the king of Chinese battery technology Robin Zeng, CEO of Contemporary Amperex Technology (CATL).
General Energy News
Both Brent and WTI benchmarks jumped more than 6% on Monday, due to the surprise OPEC+ announcement.
A Bloomberg opinion piece posits that the OPEC+ move was aimed squarely at one audience: speculators betting on falling oil prices. It’s a return to the tactic first used by Prince Abdulaziz bin Salman, Saudi Energy Minister, in 2020, when he famously said he wants “the guys in the trading floors to be as jumpy as possible” and vowed that “whoever gambles on this market will be ouching like hell.” Explaining the most recent decision, delegates pointed to market data on the build-up in short-selling. As prices slumped with the banking crisis in late March, speculators piled up bearish bets on US crude to the highest in four years and reduced bullish positions to the lowest in more than a decade. EPM notes that the same Bloomberg report also confirms our assessment from yesterday, which was that OPEC+ made its decision because it fears the banking crisis will adversely affect the global economy, and thereby the crude oil demand outlook.
After the dust of the surprise OPEC+ announcement settled, analysts looked at its implications and updated their forecasts. The consensus is that $100 oil by the end of the year is now more likely, which, as we highlighted yesterday, would adversely affect inflation and thus increase the likelihood of a global economic downturn, writes Reuters. At EPM we note that this “updated outlook” assumes strong oil demand growth, which in our view underestimates of the impact of monetary policy tightening will have on the real economy.
German insurers Allianz and Munich Re have renewed cover for the damaged Russia-controlled Nord Stream 1 gas pipeline, Reuters reports, which indicates that its revival has not been ruled out after the sabotage attack.
Lastly, an opinion piece over at the Financial Times argues that the increased importance of the Chinese Renminbi in global oil trade is massively overstated by most commentators. China wants to purchase more oil in Renminbi and indeed, needs to purchase oil denominated in something other than US dollars, as some important suppliers (Iran, Venezuela and Russia) are sanctioned by the US. For this reason, China set up its own commodity exchange in Shanghai — the Shanghai International Energy Exchange (INE) — in 2018, for oil futures contracts settled in Renminbi with physical delivery. The sums traded in Shanghai remain pretty small, 5.1% of global trade over the past 3 months, a share that has barely moved since inception of the INE. A potential deal between China and Saudi Arabia to trade some oil in Renminbi would still not move the needle, maybe moving the INE share of trade to 6%. In the unlikely scenario all of China’s oil imports would be settled in renminbi, the INE share would rise to 15-20% of the global total. In conclusion, therefore, the US dollar will remain the dominant in oil trading currency for the foreseeable future. China cannot “internationalise” its currency simply by paying for all of its oil imports in Renminbi. It has to convince third parties to trade in Renminbi as well.
Energy Transition & Technology News
China is leading in the race to develop replacements for the lithium-ion battery, a Nikkei analysis shows. A country-by-country 10-year tally of post-lithium-ion battery patents issued over the past 10 years shows China accounts for more than half. China ranked first with 5,486 patents, accounting for more than 50% of the total. Japan, which had been number one until 2015, was next with 1,192 patents, followed by the US's 719, South Korea's 595 and France's 128. The evaluation of patents for sodium-ion batteries in particular, perhaps the biggest horse in the race, also shows China dominating Japan and the US, and Chinese companies are expected to begin mass production of these batteries this year.
The Global Energy Crisis
Europe's energy supply concerns are easing, writes S&P Global, with the Continent starting Q2 2023 in much better shape than many had expected. Strong LNG deliveries and lower demand helped push gas and power prices close to pre-crisis levels.
Other
Bloomberg carries a deep dive on Sultan Al Jaber, CEO of ADNOC and chair for COP28.
The Financial Times carries a deep dive on Contemporary Amperex Technology (CATL), the absolute king of battery technology, and its founder and CEO Chinese billionaire Robin Zeng.