1. OPEC+ Sticks to Charted Course, Confident of Market Balance Coming Soon
- The OPEC+ oil group agreed to maintain its crude output increase for December 2021 at the pre-agreed 400,000 b/d despite calls from US, Japan and India to pump more oil into the markets.
- The ongoing energy crunch and natural gas shortage specifically were often quoted at the October 05 meeting, saying lack of gas overheated oil demand, however supply would still overtake demand by Q1 2022.
- Largely helped by terminal declines in Angola and Malaysia, civil strife in South Sudan and recurring technical issues in Nigeria, OPEC+ has maintained a solid compliance rate of 111% in September 2021.
- The revival of JCPOA talks with Iran, assumed to take place on November 29, might bring some thrill into OPEC+ meetings – as of today, with US supply being slower on the uptake, the oil group is fairly satisfied overall with how the production curtailments are working.
2. Big Oil is Focused on Share Buybacks and Dividends
- With almost all oil majors having reported their Q3 results, it seems that the oil industry’s main trend will be focused on share buybacks and stable dividends in the upcoming months.
- Chevron produced the best cash flow in its entire 142-year history, only to announce its intention of increasing share buybacks, keeping CAPEX still below pre-pandemic levels.
- Reticence to splash the cash also stems from systemic…
1. OPEC+ Sticks to Charted Course, Confident of Market Balance Coming Soon
- The OPEC+ oil group agreed to maintain its crude output increase for December 2021 at the pre-agreed 400,000 b/d despite calls from US, Japan and India to pump more oil into the markets.
- The ongoing energy crunch and natural gas shortage specifically were often quoted at the October 05 meeting, saying lack of gas overheated oil demand, however supply would still overtake demand by Q1 2022.
- Largely helped by terminal declines in Angola and Malaysia, civil strife in South Sudan and recurring technical issues in Nigeria, OPEC+ has maintained a solid compliance rate of 111% in September 2021.
- The revival of JCPOA talks with Iran, assumed to take place on November 29, might bring some thrill into OPEC+ meetings – as of today, with US supply being slower on the uptake, the oil group is fairly satisfied overall with how the production curtailments are working.
2. Big Oil is Focused on Share Buybacks and Dividends
- With almost all oil majors having reported their Q3 results, it seems that the oil industry’s main trend will be focused on share buybacks and stable dividends in the upcoming months.
- Chevron produced the best cash flow in its entire 142-year history, only to announce its intention of increasing share buybacks, keeping CAPEX still below pre-pandemic levels.
- Reticence to splash the cash also stems from systemic issues such as ESG pressure – Exxon pledged to dedicate 15% of investments towards low-carbon, whilst Shell is fighting off an activist investor’s drive to split the firm in two.
- With crude at its highest level since October 2014, energy stocks have been once again the best-performing S&P 500 category last month.
3. Renewables Capacity Still Needs to Move Towards Actual Generation
- According to S&P Global, total wind, solar and hydro capacity additions hit an all-time high last year with 260 GW installed globally, with China accounting for half of the increments.
- At the same time, in terms of actual generated output renewables accounted for only a third of this year’s power demand growth, hinting at underutilization concerns.
- With most of the world bouncing back strongly from the pandemic-ridden year of 2020, this year’s total demand growth is assumed to hit 150 GW, roughly double of what Platts expects the 2021-2040 annual average to be.
- Concurrently, runaway commodity prices (especially those of metals) will hurt the roll-out of renewables in the mid-term amidst ballooning feedstocks costs and supply chain bottlenecks.
4. Japan Wants More US Term Deliveries
- Tokyo Gas, one of Japan’s main utility firms, is considering linking its new LNG term contracts to European and US gas hubs to diversify its pricing away from Asian benchmarks.
- Japan already has long-term supply deals from Cove Point and Cameron LNG but the spiraling of European TTF prices is making US LNG look like the most commercially attractive pricing option.
- Japan’s LNG imports continue to falter with October inflows coming in at 5.6 million tons LNG, 8% lower year-on-year despite the overall demand rebound of 2021.
- The low LNG arrivals come despite Japan’s Ministry of Economy, Trade, and Industry calling for sufficient stocking ahead of winter, as spot prices hover around $32-33 per mmBtu.
5. China Government Crackdown Cools Thermal Coal Prices
- Chinese thermal coal futures, as assessed on the Zhengzhou Commodity Exchange, have bounced back from the downward spiral triggered by the government’s crackdown on what it believes to be speculation.
- Whilst the November contract was barely traded in the last sessions, it managed to climb back to ¥1,300 per metric ton, whilst the most-traded January futures remained below ¥1,000/mt (equivalent to $155/mt).
- Chinese coal prices witnessed the longest (10-day) losing streak since 2015 as the authorities cracked down on ‘speculation’, including lawsuits against reporters, and probed illegal coal storage sites.
- The pressure from the government was so effective that producers in one of the key producing regions, Inner Mongolia, proactively reduced thermal coal prices to under ¥1,000 per metric ton, roughly to the same level as the December/January coal futures.
6. European Power Prices Rise Again on Weaker Wind Generation
- Stronger-than-usual wind generation helped cool European power prices in late October, however two days of weaker wind in NW Europe were enough for power prices to bounce back to previous levels.
- German baseload prices traded around €165 per MWh this week, whilst France was assessed around €170 per MWh.
- Concurrently, ICIS reports that the average length and size of power purchase agreements (PPA) has continued to shrink, now averaging 11 years, as utility firms put a premium on pricing flexibility.
- Appetite for longer-term power deals might increase if electricity off-takers believe commodity prices will remain on an upward trajectory in the upcoming years.
7. Chinese Wind Producers Eye Global Expansion
- Despite China wielding an aggregate wind generation capacity of 281GW (as of end-2020), more than double than the second-largest market globally (US) has, the presence of Chinese firms abroad remains tiny in comparison.
- Now leading Chinese wind companies Goldwind and Ming Yang stated they consider expanding into the European and American markets a top priority.
- China’s State Shipbuilding Corp. recently presented the world’s largest offshore wind turbine model, 16MW capacity and a rotor diameter of 256m, with the aim of boosting sales abroad.
- The US might be of particular interest as the Biden Administration set a 2030 target of reaching 30GW offshore wind capacity, up from zero today.
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