Energy, Politics, & Money - 2023.09.20
Independent, objective, & neutral analysis of global developments curated from sources covering global developments in energy, geopolitics, & investment.
In this roundup, we look at:
Goldman Sach’s decision to raise their oil price forecast for the fourth quarter back to $100 a barrel, and why it believes an average of $80 – 105 a barrel is possible in 2024
The Asian Development Bank decision to downward adjust its growth forecast for Asia this year
What oil’s price rise will mean for inflation, and thereby global interest rates
China’s apparent willingness to further strengthen trade ties with Russia, which in the EPM view is meaningful, considering the fact that the many US dignitaries that spoke to the Chinese got essentially no official responses
ExxonMobil’s energy transition strategy, which is primarily about providing “carbon management as a service”, including via DAC, rather than offering a wide range of low carbon energy solutions
The maritime industry’s look at nuclear to power commercial ships in a Net Zero way
The UK government’s consideration of a further scale-back of its Net Zero commitments
COP28’s focus on progressing towards a global carbon price or tax
General Energy News
Goldman Sachs has rejoined the $100-a-barrel oil club, writes Bloomberg, raising its forecast for crude back to triple digits following crude’s spectacular rise over recent weeks. With prices advancing by more than 30% since mid-June to breach $95 a barrel on Tuesday, the Wall Street bank nudged up its 12-month forecast for global benchmark Brent to $100 a barrel from $93. The market will have a deficit estimated at 2 million barrels a day this quarter, followed by a shortfall of 1.1 million barrels a day in the final three months of 2023, Goldman said. Citigroup is less convinced. Geopolitics plus technical trading “could push oil over $100 for a short while”, it says. However, a well-supplied market — from producers outside OPEC — should mean that “$90 prices look unsustainable,” it added.
Looking further out, “We believe that OPEC will be able to sustain Brent in an $80-to-$105 range in 2024 by leveraging robust Asia-centric global demand growth,” Goldman Sachs bank says. Reuters writes this is based on the assumption that Saudi Arabia will gradually unwind its voluntary output cut of 1 million bpd starting in the second quarter of 2024, but that the 1.7 million bpd cut agreed with eight other OPEC+ members will hold throughout next year.
Macroeconomics
The Asian Development Bank lowered its growth forecast for developing Asia this year, to 4.7% from 4.8%, as high interest rates and the property crisis in China pose growing risks, writes Nikkei Asia. "Weakness in [China's] property sector is weighing on regional prospects. High global interest rates have increased the risk of financial instability," the bank said. "Sporadic supply disruptions from the continuing Russian invasion of Ukraine, export restrictions, and the increased risk of droughts and floods caused by El Nino could once again trigger rising food prices and challenge food security."
The approach of crude toward $100 a barrel is presenting central bankers with a new inflation problem, writes Bloomberg. The likely outcome is that rates will remain high, for longer. If oil’s increase ultimately means it averaging $100 per barrel through the fourth quarter, that could impact US inflation by up to 0.9 percentage point, according to calculations. In the euro area and UK, it’s closer to 0.4 percentage point.
China's exports of germanium and gallium products in August plunged to zero, due to new export controls on the two chipmaking metals, writes Reuters.
Geopolitics
China has urged increased cross-border connectivity with Russia and deeper mutual trade and investment cooperation, writes Reuters. The Russian minister of economic development held "in-depth" discussions on economic cooperation with the Chinese commerce minister in Beijing on Tuesday, coinciding with a trip by China's top diplomat, Wang Yi, to Moscow for strategic talks that led to the confirmation of Russian President Vladimir Putin's visit to Beijing next month. Beijing has rejected Western criticism of its growing partnership with Moscow in light of Russia's war on Ukraine. It insists the ties do not flout international norms, and China has the prerogative to collaborate with whichever country it chooses. In the EPM view is meaningful. Over recent months a flurry of US dignitaries have visited and/or spoken to Chinese leaders. Yesterday we explained why the none of the Chinese meetings have had any impact on the reality on the ground. At the same time, however, when the Chinese meet Russian dignitaries, that tends to be followed by announcements of closer collaboration, signaling a very different dynamic in the China – Russia relationship than in the China – US relationship.
Energy Transition & Technology News
ExxonMobil is working on developing technology for direct air capture (DAC) of carbon dioxide, and sees a clear place for it in a net-zero future, but the largest U.S. oil company has no plans to invest in building electric vehicle charging stations, writes Reuters. DAC could complement Exxon's carbon capture and storage (CCS) business, which will also involve trapping emissions underground. EPM summarizes this as meaning the ExxonMobil energy transition strategy is primarily about providing “carbon management as a service”, including via DAC, rather than offering a wide range of low carbon energy solutions.
The maritime industry is exploring whether nuclear fuel can be used to power commercial ships, writes Reuters. Nuclear energy is being used to power military vessels, including aircraft carriers and submarines. Its use by merchant ships has been constrained partly by costs, but also due to wariness by insurers of providing cover for ships going into commercial ports without more understanding of the risks involved. The renewed interest by the commercial maritime sector in the propulsion technology is due to two factors. One, the pressure to decarbonize. Two, a perceived progress in nuclear technology, in particular small modular reactors. Those players in the shipping industry looking at the option, believe pilots could be done 7 to 10 years from now.
Climate Politics
The UK government is considering weakening some of its key green commitments, writes the BBC. Prime minister Rishi Sunak is quoted as saying, "For too many years politicians in governments of all stripes have not been honest about costs and trade-offs. Instead they have taken the easy way out, saying we can have it all”. The scale-backs being considered include delaying a ban on the sales of new petrol and diesel cars as well as the phasing out of gas boilers. The government would push the ban on the sale of new petrol and diesel cars – currently set to come into force in 2030 – back to 2035, and would significantly weaken the plan to phase out the installation of gas boilers by 2035, saying that they only want 80% to be phased out by that year. Homeowners and landlords would be told that there will be no new energy efficiency regulations on homes. In addition, Britons will be told that there will be no new taxes to discourage flying, no government policies to change people's diets and no measures to encourage carpooling.
Forging a consensus around a global carbon price or tax will be a key priority at the upcoming Climate Change Conference in Dubai, COP28 Director-General Majid al-Suwaidi has told S&P Global.