Fears of Middle Eastern Flareups Prompt Traders to Hedge Bets
- Israel's assassination of a top Hezbollah commander in Beirut and Hamas leader Ismail Haniyeh in Tehran has raised the geopolitical risk premium in oil prices as potential retaliation from Iran could prompt a new spiral of escalation in the Middle East.
- According to Bloomberg, more than 300,000 Brent call option contracts were traded on Wednesday, the largest single-day volume since Israel's April attack on the Iranian consulate in Damascus.
- The traded volume was dominated by higher call spreads, mostly between $87 and $90 per barrel for the October contract, which allow traders to lock in profits should prices suddenly soar higher.
- Implied volatility has moved higher after weeks of stale trading, underscored by the fact that option skews are now tilted towards call options, trading at a premium over the opposite puts.
Defying Output Cuts, Rising US Natural Gas Production Keeps the Pressure on Prices
- Rising US natural gas production has been one of the key bearish factors pushing Henry Hub futures lower despite some shale gas producers curbing output, with recent weeks seeing production as high as 102 BCf/day.
- It seems that some upstream firms that previously committed to cuts are now bringing production back - EQT announced last month that it would gradually return some 1 BCf/day back to the market.
- In its most recent earnings…
Fears of Middle Eastern Flareups Prompt Traders to Hedge Bets
- Israel's assassination of a top Hezbollah commander in Beirut and Hamas leader Ismail Haniyeh in Tehran has raised the geopolitical risk premium in oil prices as potential retaliation from Iran could prompt a new spiral of escalation in the Middle East.
- According to Bloomberg, more than 300,000 Brent call option contracts were traded on Wednesday, the largest single-day volume since Israel's April attack on the Iranian consulate in Damascus.
- The traded volume was dominated by higher call spreads, mostly between $87 and $90 per barrel for the October contract, which allow traders to lock in profits should prices suddenly soar higher.
- Implied volatility has moved higher after weeks of stale trading, underscored by the fact that option skews are now tilted towards call options, trading at a premium over the opposite puts.
Defying Output Cuts, Rising US Natural Gas Production Keeps the Pressure on Prices
- Rising US natural gas production has been one of the key bearish factors pushing Henry Hub futures lower despite some shale gas producers curbing output, with recent weeks seeing production as high as 102 BCf/day.
- It seems that some upstream firms that previously committed to cuts are now bringing production back - EQT announced last month that it would gradually return some 1 BCf/day back to the market.
- In its most recent earnings call, leading US natural gas producer Chesapeake stated that it is on track to reach the target of keeping 1 BCf/day of production as spare reserve by Q4, seeing that its year-ago profit changed to a $227 million net loss in Q2.
- Henry Hub futures continue to trend below the $2 per mmBtu threshold, simultaneously pushed lower by forecasts of milder weather in August and gas inventories rising to 3,249 billion cubic feet by the end of July.
Saudi Arabia's Economy Bears the Weight of OPEC+ Cuts
- Saudi Arabia's economy contracted for the fourth straight quarter, dipping by an annual 0.4% in the April-June period on the heels of lower hydrocarbon revenues, denting the ambition of the country's Vision 2030 plan.
- The economic decline has been primarily driven by a contraction in the oil sector, with Q2 witnessing an 8.5% year-over-year drop, too significant a drop to be offset by 4.4% growth in the non-oil sector.
- Budgeting needs have been weighing heavily on Saudi Arabia's economy as the IMF estimates its fiscal breakeven level at $96 per barrel, well above the average price of Brent this year, slightly below $84 per barrel.
- Expecting Riyadh to bounce back to growth in the second half of 2024, the IMF expects Saudi Arabia's GDP growth this year to settle at 1.7%, only to accelerate next year to 4.7%.
Europe Slams the Brake on Coal Imports
- Europe's coal demand is in a freefall, with the European Union expecting consumption in member countries to fall below 300 million tonnes in 2025 all the while coal imports continue to dry up.
- Germany and Poland, the continent's two main producers of coal, still consume a sizable volume of their own output but both have drastically cut down on imports as inflows to the two countries reached only 2.2 million tonnes, down from 6.2 million tonnes in H1 2023.
- It is not all efficiency gains and renewable energy penetration that has allowed European countries to shed coal quicker than assumed; weak industrial activity with a regionwide metal smelting crisis and anemic power demand growth have also played a role.
- According to Kpler data, Turkey remains the largest coal importer in Europe accounting for 36% of all incoming volumes, with the Netherlands coming in second place at 25% of all imports.
China's Renewable Power Capacity Overtakes Coal
- For the first time in history, the total generation capacity of wind and solar plants in China surpassed coal, aided by the fact that the past year's coal buildout has run its course and there was only 8 GW of new capacity added in H1 2024.
- Last year's record wind and solar capacity addition (293 GW) is unlikely to be met this year after H1 saw new capacity rise by 105 GW and 25 GW for solar and wind, respectively, but it set the base high enough to reap rewards this year.
- According to Rystad Energy, solar capacity alone is set to overtake coal's nationwide capacity of 1.23 GW by 2026, thanks to significant cost reductions for solar panels as polysilicon prices plunged lately on overproduction.
- Wind energy was China's first attempt to scale renewable power generation capacity, expanding into offshore wind farms since 2018, although uncertainty regarding feed-in tariffs has slowed down the pace of its proliferation.
Slacker China Sales Sow Clouds of Doubt over Tesla
- US EV carmaker Tesla posted a 24% year-over-year decrease in shipments from its Shanghai factory in China, marking the fourth time in 2024 to date that monthly output has fallen compared to last year's pace of production.
- The disappointing results are in line with last week's Q2 earnings call, seeing a 7% year-over-year drop in automotive revenue, notwithstanding a tripling in regulatory credits to $890 million that were also included.
- Total shipments of so-called new energy cars in China are believed to have risen 8% in June compared to the month prior, ticking in at 970,000 units, with BYD increasing its market share to 35%.
- Weaker China sales come despite Beijing creating financial incentives to trade in older cars for new EVs, including a one-off subsidy worth ¥10,000 ($1,500) introduced in April.
PDVSA Boosts Output As Election Turmoil Roils Venezuela
- Protests have erupted across Venezuela after sitting President Nicolas Maduro claimed victory in elections held July 27, even though the electoral council only reported tallies after 80% of votes counted.
- The US Department of State has recognized Maduro's rival Edmundo Gonzalez as the legitimate winner of the presidential elections, saying that Caracas should start a 'respectful and peaceful transition' of power.
- According to PDVSA's internal documents, production from the state oil firm and its foreign partners rose to 993,000 b/d in July, up almost 10% month-over-month compared to June, with huge increases reported across the Orinoco Belt.
- US oil major Chevron has managed to ramp up production at its Petropiar JV to 95,000 b/d, making it the most prolific joint venture in terms of output, whilst also boosting supplies from the heavy Boscan field to 90,000 b/d.