Energy, Politics & Money - 11 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 Thursday 11 August, 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, where we examine:
Pressure on crude oil prices pushing them downward
ExxonMobil considering expanding its global trading operations. Again.
Conflicting opinions on U.S. inflation
Chinese-U.S. tensions likely to move from Taiwan to the Indian Himalayas
Japan and Chinese battling it out over new battery technology
Australia’s carbon capture, utilization, and storage (CCUS) sector looks set for a boost
The drought in Europe and its effect on river based commercial transport
General Energy News
Reuters reports on the physical oil market where spot prices for prompt delivery have now weakened as well. Spot premiums for Oman crude hit their lowest level in over a month and Dubai is at its lowest since late May. North Sea Forties also fell to depths last seen three months ago, while Azeri BTC crude oil hit levels not seen since the end of last year. All this is due to signals coming from the demand side. Analysts and traders are saying lower-than-usual U.S. gasoline demand during peak summer driving season and contracting factory activity in China indicate high prices are negatively affecting consumption in the world's top oil consumers.
This creates a distinctly negative atmosphere on the trading floor and translates into lower futures prices. Again Reuters reports that during early trading in Asia on Thursday, traders’ anticipation of more crude oil entering the market, coupled with weaker demand, caused Brent to fall by 53 cents to $96.87 (or by 0.5%) while WTI fell 61 cents to $91.32 (or by 0.7%).
All this means that, as Bloomberg notes, there had better be some supportive news in the upcoming IEA and OPEC market reports otherwise the crude oil price will continue to experience downward pressure over coming days.
ExxonMobil is apparently considering expanding its trading operations globally – again. It first announced this ambition back in 2018, but then pulled back hard when the oil price crashed under Covid pressures in 2020 (much to the dismay of traders it had brought in to deliver on its 2018 ambition). Read more about it on Bloomberg, but there was a time when such back-and-forth was unimaginable at ExxonMobil…
The Macro Environment (economics & geopolitics)
U.S. inflation decelerated in July by more than expected as consumer prices rose 8.5% from year ago, compared to 9.1% in June according to Bloomberg. Some analysts argue that this might translate into a lower of pressure on the U.S. Fed to increase rates, which is a positive signal for economic growth (The Financial Times reports on how this pushed up the NASDAQ by 20% on Wednesday). However, it is a negative signal for the U.S. dollar. Bloomberg’s view is distinctly less positive, “With rents still pushing higher and elevated wages beginning to seep into services inflation, we expect this pause to be short-lived. Core CPI could approach 7% in the coming months -- despite our assumption of moderation in goods prices.”
In geopolitics, Nikkei Asia reports the U.S. and India are preparing military drills in the Himalayas, on India’s border with China. Indeed, they are planned for the same area, where, as little less than a year ago, Indian and Chinese troops were involved in deadly skirmishes. Drills like these have taken place before, but never as close to the actual border with China. Clearly, therefore, this will be interpreted by China as yet another step by the U.S (and India) to increase pressure on China. The U.S. and India will - unsurprisingly - want to communicate that decision-making on how and where they collaborate can not be influenced by outside parties (i.e. China).
And lastly, we note The Financial Times now carries a report the corruption cases involving executives linked to the China’s largest chip investment fund – something we discussed last week already.
Energy Transition & Technology News
Nikkei Asia reports on how China and Japan are battling it out over redox flow battery storage technology. A “redox” flow battery, so named for employing chemical reduction and oxidation reactions, uses pumps to circulate electrolytes typically based on vanadium ions. The system promises better safety and a much longer lifespan -- a unit can last more than 20 years, while typical lithium-ion batteries last for about a decade.
Australia’s carbon capture, utilization, and storage (CCUS) sector looks set for a boost as oil and gas companies, including BP, Santos, and Woodside Energy, are investing heavily in large-scale projects. Based on the current project pipeline some US$20 billion will be invested in the sector by 2030, Energy Voice reports.
According to CNBC, Japanese shipping giant Nippon Yusen Kaisha is to take part in a tidal power project planned for Singapore. The demonstration project, run by Singapore-owned Bluenergy Solutions, is focused on the development of off-grid tidal power systems. The hope is that they could one day replace diesel generators.
The Global Energy Crisis
In France, EDF has filed a legal claim for euro 8.34 billion ($8.54 billion) compensation from the French state for the additional allocation of 20 TWh electricity to be sold in 2022 at the regulated ARENH price, S&P Global reports. EDF will have to buy the 20 TWh on wholesale markets where prices have hit record highs amidst the Global Energy Crisis.
Other
An important issue to watch is the drought over in Europe, as it is making transport of commodities and other goods across the continent very difficult. Bloomberg reports that the main rivers used for transportation are evaporating amidst drought. The Rhine — a pillar of the German, Dutch and Swiss economies for centuries — is set to become virtually impassable at a key way point later this week, stymieing vast flows of diesel and coal. The Danube, which snakes its way 1,800 miles through central Europe to the Black Sea, is gummed up too, hampering grain and other trade. Amidst record inflation and an energy crisis due to the region’s sanctions against Russia, this is an issue Europe could certainly do without. Transportation rates are going up rapidly, imposing additional costs on European businesses that affects their competitive position. And, actual transportation might actually grind to a halt if the situation continues on its current trajectory, which would force businesses dependent on river transportation to shut down.