World Energy News for 13 July 2022
General Energy News
Bloomberg reports, “Concerns over an economic slowdown have overshadowed tight physical crude markets”. Meaning, the risk of a global economic recession, for all the reasons we have been highlighting here since longer (inflation, monetary tightening and an energy crisis increasing political crises around the world), is now being priced into crude oil.
According to Reuters, “OPEC expects global oil demand to rise in 2023 but at a slower pace than 2022”. We’d argue that among all the crude oil demand outlooks, OPEC’s is usually the most optimistic, and they probably have not yet fully factored in the economic recession that is coming.
The IEA, meanwhile, also lowered its oil demand estimates for 2022 and 2023 because of a “deteriorating” economic environment. According to S&P Global, “In its monthly oil market report, the IEA highlighted weaker-than-expect demand from the US summer driving season and reduced its demand growth estimates by 100,000 b/d for both years to 1.7 million b/d and 2.1 million b/d, respectively.”
OPEC and the IEA assessments are made based on what the current “consensus outlook” for the global economy is. Both use different assumptions as to how this outlook will impact oil demand. Both are therefore useful data points. Our view is that in a crisis situation, consensus outlooks are generally affected by the “optimism bias”.
Energy Transition & Technology News
The Macro Environment (economics & geopolitics)
Reuters reports that after just one month, the IMF has lowered its outlook for US 2022 economic growth from 2.9% to 2.3%, and its 2023 outlook from 1.7% to 1.0%. Based on experience we highlight that IMF forecasts usually trail what’s happening on the ground. As such, we expect more downwards revisions over coming months.
The IMF’s Managing Director Kristalina Georgieva summarized the current economic predicament in the following manner, “What we see now is a crisis upon a crisis, and possibly a third shock of tightening of financial conditions to come after the pandemic and on top of the war” reported by Bloomberg: .
The Electrification of Transport
Bloomberg interviewed Paul Jacobson, CFO, General Motors and electrification of transport was discussed.
ESG
The Financial Times features an opinion piece on the subject of ESG investing. It includes a key insight “For many professional investors, ESG investing is an approach through which to identify risks to a company’s financial health. Most individual consumers and retail investors, on the other hand, assume it means focusing on companies that act responsibly towards society and the environment.” And as the way forward it proposes moving beyond ESG, toward Impact Investing: “Impact investment is investment made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Where ESG is often passive — avoiding something — impact is proactive, intentionally seeking to deliver a positive benefit.”
Special features – The Global Energy Crisis
Reuters reported that Brazil is aiming to buy as much diesel as possible from Russia, indicates that Europe’s energy crisis is entirely self-inflicted. It did not have to sanction Russia, it chose to do so. And, like many other South American countries, Brazil is choosing not to.
The US, meanwhile, who doesn’t need Russian energy to begin with, the case to sanction or not to sanction is irrelevant to its interests. Over coming months, the extent of the damage sanctions are causing the European economy will become clearer – in terms of absolute (energy rationing) and relative (global competitive position). Europe will pay a huge price for signalling moral outrage over Russia’s invasion of Ukraine. The question is, will this lead the Europeans to change their position on sanctions?
Higher prices for the main source of energy oil and gas, and/or a lack of supply, affects every part of modern life. Here, the Financial Times highlights how it is affecting the chemicals used in essential goods. Refineries and petrochemical producers are prioritizing their fuel businesses over production of chemical feedstocks, as a consequence of which chemicals too will see higher prices and/or a lack of supply.