Saudi Government's Milking of Saudi Aramco Leads to Underperformance
- Saudi Aramco has posted a 3.4% year-over-year decline in its Q2 net income, dropping lower to 29.07 billion due to lower oil sales volumes and weaker refining margins.
- The Saudi national oil company has been bearing the brunt of OPEC+ voluntary production cuts, because of which it has underperformed all Western oil majors, down more than 17% since the beginning of 2024.
- Saudi Arabia's oil rent has been hovering between 20% and 25% of the country's GDP, with Riyadh (the kingdom owns 97% of the company directly and through its investment fund) lifting Aramco's dividends to a record 124.2 billion this year, despite lower revenues.
- There seems to be a growing divide between the ambitious demand expectations of Saudi Aramco, with CEO Amin Nasser expecting demand growth to be 1.6-2 million b/d in the second half of this year, and other oil-focused organizations and consultancies.
Russian Oil Exporters Shed Western Shipping and Insurance
- The share of tankers lifting Russian crude oil that were not flagged, owned, or operated by companies based in the G7 rose to the highest on record in July, hitting 83% as a total of 2.64 million b/d of oil exports used the so-called grey fleet.
- Western authorities have blacklisted more than two dozen tankers for non-compliance with the G7 price cap in recent weeks, but that seems to have only…
Saudi Government's Milking of Saudi Aramco Leads to Underperformance
- Saudi Aramco has posted a 3.4% year-over-year decline in its Q2 net income, dropping lower to 29.07 billion due to lower oil sales volumes and weaker refining margins.
- The Saudi national oil company has been bearing the brunt of OPEC+ voluntary production cuts, because of which it has underperformed all Western oil majors, down more than 17% since the beginning of 2024.
- Saudi Arabia's oil rent has been hovering between 20% and 25% of the country's GDP, with Riyadh (the kingdom owns 97% of the company directly and through its investment fund) lifting Aramco's dividends to a record 124.2 billion this year, despite lower revenues.
- There seems to be a growing divide between the ambitious demand expectations of Saudi Aramco, with CEO Amin Nasser expecting demand growth to be 1.6-2 million b/d in the second half of this year, and other oil-focused organizations and consultancies.
Russian Oil Exporters Shed Western Shipping and Insurance
- The share of tankers lifting Russian crude oil that were not flagged, owned, or operated by companies based in the G7 rose to the highest on record in July, hitting 83% as a total of 2.64 million b/d of oil exports used the so-called grey fleet.
- Western authorities have blacklisted more than two dozen tankers for non-compliance with the G7 price cap in recent weeks, but that seems to have only limited impact as the size of the grey fleet keeps on increasing.
- Both Russian oil companies and Chinese shippers see mainland China and Hong Kong as the safest spots to register their shadow fleet, with ships domiciled in those two territories accounting for 29% of Russian exports last month.
- Russian oil exports have dropped substantially in July on the heels of improved OPEC+ production cut compliance and higher domestic refinery runs, averaging 3.2 million b/d, down by around 0.5 million b/d compared to June.
US Utilities Might Be the Next Best Thing For Energy Investors
- US power utility companies might become the most sought-after investment opportunity in the markets right now, becoming the top-performing S&P 500 sector since the benchmark index hit a record high on July 16.
- Utility companies such as NextEra Energy or Duke Energy have been up on average up 4% over the past three weeks, while the broader index has lost 7% in the immediate aftermath of the stock selloff.
- The combination of lower Treasury yields and anticipation of impending US Federal Reserve interest rate cuts have heated up interest in high-dividend stocks, with utility companies riding high on incremental energy needs of the AI revolution.
- Historically, utilities have been the best-performing market sector in the period that includes the three months before and after the first interest rate cut in a cycle, according to Goldman Sachs research.
Iraqi Patchy Compliance Becomes OPEC+'s Headache
- OPEC+ oil production posted its largest month-over-month increase in a year, almost exclusively driven by Iraq and Kazakhstan as both countries raised output despite pledges to stick to their respective compensation plans.
- OPEC+'s total production stood at 41.03 million b/d in July according to a S&P Global survey, some 437,000 b/d above the group's aggregate target for the month, up from 229,000 b/d in June.
- Despite some promising news from Kurdistan that Erbil is cracking down on illegal refiners and fuel smugglers, Iraq's production remained a whopping 400,000 b/d above its quota, at 4.33 million b/d.
- The African contingent of the oil group has been mostly underperforming its targets, with civil war-stricken South Sudan, Nigeria, Sudan and Congo all producing below their targets due to force majeure events and structural decline.
Ukraine's Incursion Into Russia Raises Pipeline Flow Risks
- Russia's border town of Sudzha has become the most closely followed location in the European gas markets as Ukraine's military offensive into the Kursk region threatens to disrupt all of Gazprom's pipeline flows toward continental Europe.
- Whilst Russian gas flows via Ukraine have not stopped and Gazprom still booked 37.3 million m3/day of transit capacity, heavy fighting around the only functional Europe-bound metering station presents substantial disruption risks.
- Europe's benchmark TTF natural gas futures soared above €40 per MWh ($14 per mmBtu) on Thursday for the first time since December 2023, notably above Asia's LNG Japan/Korea marker prices.
- The gas transit agreement between Russia and Ukraine is set to expire at the end of this year, but the European Union seeks to keep flows intact through an Azeri-Russian gas volume swap.
UK Seeks to Reinvent Its Carbon Strategy as Government Eyes More Revenue
- The United Kingdom's carbon allowance program has been diverging from European trends, with London potentially missing out on as much as 10 billion of revenue by 2028 if the country stays outside of the EU carbon market.
- The study comparing the two carbon markets was commissioned by several power generating companies such as Centrica or Drax, believing that a re-coupling of UK and EU carbon markets could also increase power earnings for generators.
- Historically, UK carbon prices tended to trade above Europe's ETS, but the post-2022 collapse in UK gas-fuelled generation and the Sunak government's higher allowance supply resulted in the UK seeing prices 36% lower than Europe.
- The recently elected Labour government has signaled its readiness to realign its carbon market with the European Union's, but with Brussels' carbon border adjustment mechanism starting in 2026, time might be in short supply.
Short-Term Outlook for Copper Sapped by Multi-Year High Inventories
- Copper prices have lost all steam after losing almost 25% of their peak mid-May value, with recession fears across the Atlantic Basin and weak Chinese data dragging the metal below 9,000 per metric tonne.
- The net length in CMX copper futures and options held by money managers and other hedge funds has now fallen to a mere 9,500 contracts, the lowest since early March, mostly through a massive reduction in long positions.
- Whilst base metals might see support from H2 Chinese stimulus measures, high inventories in copper render that unlikely to happen with the transition metal - LME stocks are the highest since September 2019 at almost 295,000 metric tonnes.
- Chinese overcapacity remains a problem for Dr. Copper, believed to be the bellwether of the global economy's health, as most of the incremental inventories placed in LME stocks have been of Chinese origin.