Energy, Politics & Money - 09 August 2022
Curated news from the ever evolving worlds of energy, geopolitics, and money just for you!
Welcome to the Energy, Politics & Money news feed of 09 August 2022, with your daily dose of cutting-edge insight into everything of importance in the connected worlds of energy, geopolitics and the economy.
In this roundup, we review:
Downward pressures on oil due to recessionary fears and the return of Iranian oil
Crude oil futures are trending down while shipping makes record haulage fees
IOC assets are being sold to local producers in Nigeria
European skepticism over a new deal with Iran
Continuing China-US tensions over Taiwan
More on the US Inflation Reduction Act
UNCTAD prognostications on energy policy for developing and developed countries
General Energy News
Over the past few weeks, fears over the risk of a global economic recession have driven oil prices lower. Last week’s OPEC+ meeting briefly paused this trend as it raised the issue of limited spare capacity of member-countries that are not under any form of sanction. This week, after negotiations on the Iranian nuclear deal restarted, traders shifted focus to the likelihood of Iranian sanctions being lifted. Consequently, in anticipation of increased supply, as reported by Reuters, oil prices dipped in early trade on Tuesday with Brent futures dropping by 27 cents to $96.38 a barrel (-0.3%) and WTI by 24 cents to $90.52 a barrel (-0.3%).
Looking further ahead, John Kemp at Reuters reports traders anticipate that Europe's economy will enter a relatively severe downturn and significantly reduce regional fuel consumption over the next year. European gas oil futures prices for 2023 are at less than $86 per barrel from almost $102 in mid-June due in part to the deteriorating economic outlook.
Meanwhile, the disruption of global energy trade flows by the sanctions against Russia are turning into a boon for shippers. Bloomberg reports tankers that haul everything from diesel to gasoline are experiencing a period of strength not seen in at least 25 years. Product tankers are earning more than $40,000 a day for the past 14 weeks, a milestone not achieved since data recording began in early 1997. Those hauling crude have also been rising steadily in recent weeks after more than 18 months of loss-making business. Last Friday, a gauge that averages earnings for supertankers showed they were positive for the first time since January 2021.
The Financial Times reports Nigeria has approved the $1.28 billion sale of four oilfields run by ExxonMobil to local producer Seplat Energy. Exxon began oil operations in Nigeria in the 1950s and, alongside European rival Shell, was responsible for the creation of the oil industry that has become the bedrock of the Nigerian economy. Oil production in the swamps of the Niger Delta in the south of the country has generated billions of dollars in revenues for the companies and the government. On the flip side it also resulted in corruption, violence and criminality that International Oil Companies and groups have found increasingly difficult to manage. In response, ExxonMobil and Shell - over the past two years - have announced plans to end onshore operations while continuing to work on offshore projects. Shell’s planned divestment of its Nigerian assets is on hold pending the resolution of its appeal against a 2019 court order making it responsible for paying $1.95 billion in damages after an oil spill.
The Macro Environment (geopolitics & economics)
Starting with geopolitics, while traders’ fears of a return of Iranian barrels to the international market post a new nuclear deal /treaty is pushing the oil price down, Bloomberg reports that European diplomats fear a new agreement and, therefore, a deal, will not be reached. It is noted the gulf separating Iran and the US has grown wider since the last round of nuclear talks ended in Vienna. At least two new nuclear-related issues cropped up in recent months thereby lengthening the list of hurdles to six or seven. Technically these hurdles could be cleared within 72 hours. This, however, would require high-level political decisions from both Tehran and Washington where it appears their is no appetite for compromise.
Around Taiwan, Chinese continue with their extensive military drills. Beijing’s largest ever military exercises around Taiwan had been expected to wind down after navigation warnings for seven areas around the country expired early on Monday. However, The Financial Times reports, the People’s Liberation Army Eastern Theatre Commander said it “continued joint training under real war conditions”.
Gideon Rachman of The Financial Times believes that while US – China tensions over Taiwan are nothing new, “this time feels different”. In the past, he says, a US-China war over Taiwan seemed like a real possibility — but no more than that. Now an increasing number of experts believe that a US-China conflict is not just possible but probable. As they contemplate a conflict over Taiwan, Beijing and Washington feel obliged to talk and act tough. Each side hopes that the other is bluffing. Let us hope they are both right.
As to the macro-economic environment, Mohammed El Arian writes for The Financial Times, arguing it is too early to declare that the risk of a US recession is over. Responding to the view that the recent jobs report implies the US is in a position to avoid a recession, El Arian argues that forward indicators suggest the perceived current strength of the labour market should not be taken for granted, as job openings are declining at an historically rapid rate, weekly jobless claims have increased, and several companies have signaled the intention to slow hiring and/or lay off workers. He believes that this means the risk of a recession within the next 12 months has not been eliminated, nor that a recession, were it to occur, would be shallow and short.
Energy Transition & Technology News
In May of this year BP and Linde announced plans to develop a site to sequester (or capture) carbon dioxide produced from a Linde manufacturing close just outside of Houston. Reuters reports BP began drilling an appraisal well in Texas to support the carbon sequestration in early August.
Last week we covered the climate element of the US Inflation Reduction Act in detail and highlighted some of its main features. Just in case you missed that, Reuters conducted a similar deep dive. Much of the $370 billion is slated to go to new or expanded tax credits for promoting clean energy generation, electrification, energy efficiency and wider adoption of electric vehicles. But, fossil fuels are also supported, by protecting federal drilling auctions and upgrading of coal and gas facilities.
The Electrification of Transport
New Energy Vehicle sales sales in China are forecast to hit a record 6 million EV’s this year, doubling last year’s sales figure of 2.99 million reports Bloomberg.
The Global Energy Crisis
ESG Investor reports on a new report by the United Nations Conference on Trade and Development (UNCTAD) that calls on governments to “mix urgency and strategy” in their response to energy price volatility to avoid future “high-emission, expensive energy”. The report acknowledges rising energy prices have accelerated the cost-of-living crisis and sustaining the vicious cycle of: constrained household budgets; increasing food and energy poverty; and increasing social unrest. On the one hand UNCTAD urges developed countries to manage energy demand by introducing new technologies and behavioral changes. On the other hand, developing countries need to prioritize access to energy for business to sustain their economies and offset this with support for vulnerable populations. UNCTAD says Governments of developing and developed countries should aim to attract investment to increasingly competitive renewable energy projects.