9th October 2023

Good morning BB crew.

Here’s what hit the wires over the weekend:

• 🇮🇱 World on edge after Hamas attacks Israel

• 📈 Oil prices jump 5%

• ⬆️ OPEC’s huge oil demand revision

plus a lot more. Let’s get to it…

📈 THE NUMBERS

Oil prices jumped ~5%, before retreating somewhat, following the attacks on Israel by Hamas that risk an escalating conflict in the Middle East.

🗞️ WELL-HEADLINES

 🗽 North America

• “800-pound gorilla in the Permian“ - here are some of Wall Street’s reactions to Exxon’s rumoured big bucks takeover of Pioneer.

• Exxon’s shale boss under arrest - the head of Exxon’s shale oil unit, a division presumably heavily involved in the the Pioneer acquisition, has been arrested on suspicion of sexual assault in Texas.

• US oil rigs still falling - the US oil rig count declined by a further 5 rigs last week to 497. The oil rig count is now 105 lower than a year ago, and 130 lower than its previous high of 627 in November last year.

• Some relief in US diesel markets - after months of a tightening diesel market and climbing prices, US diesel prices retreated sharply last week on signs of low demand and falling crude prices.

🏰 Europe

• Finland / Estonia gas pipeline down - the 2.6 bcmpa Balticconnector pipeline has been shut down due to a suspected leak. Repairs could take months. The 77-km pipeline carries gas from Finland, where there’s an LNG import terminal, to Estonia.

• Var exits Brage - Var Energi has sold its late life Brage asset in the Norwegian North Sea to Petrolia as part of a portfolio clean-up.

🕌 The Middle East

• ADNOC’s IOC ambitions - the UAE’s national oil company has grand plans to expand its presence globally and fashion itself into something more resembling an international oil company (IOC). In particular, it’s seeking to build its LNG, gas, trading, and low carbon operations around the world, and has already expanded its global headcount by ~13% this year.

⛩️ Asia & Oceania

• India’s Russian oil feast is over - as the price discount of Russian oil shrinks, India is starting to look elsewhere for its crude. “We have been always saying that we will go for the cheapest oil that the country gets, because we have a commitment to our consumers to get the cheapest price. So, I think we will go to the other sources of oil, as simple as that,” said IOC’s chairman. Having previously imported negligible volumes of Russian crude, India quickly became a major customer after Russian oil prices sunk in the wake of the invasion of Ukraine.

• Uzbekistan is Russia’s newest customer - the central Asian country will start importing gas from Russia for the first time under a two-year, 2.8 bcmpa deal with Gazprom.

🌍 GEOPOLITICS & MACRO

• Hamas attacks put the world on edge - deadly terrorist attacks by Hamas on Israel over the weekend have thrown the stability of the Middle East into turmoil.

  • How will Israel respond to an attack seemingly supported by arch-foe Iran?

  • Will the US be forced to tighten sanctions on Iran at a time when it was happy to let Iranian crude flow into global markets

  • What does this mean for the Saudi / Israel normalization deal?

  • Will Hezbollah in Lebanon be drawn into the conflict?

  • With Middle East supply disruptions now a real risk, will the West take a softer approach to Russian volumes?

• One thing is for sure: geopolitical risk in energy markets is back in focus in a major way. Buckle up.

• And right on cue, Iran’s foreign minister has said that “any foolish move against Iran will be met by Iran’s destructive response”…

• OPEC sees a long future for oil - unsurprisingly, the cartel doesn’t think oil is going anywhere fast. Their new 2023 World Oil Outlook raises their global oil demand forecast to 116 mmb/d by 2045, a massive 6 mmb/d increase compared with their forecast last year. The group estimates $14 trillion of investment into supply is needed to meet this demand and that a lack of investment will result in “energy and economic chaos”.

• OPEC+ reaffirm their unity - OPEC+ ministers found time at the MENA conference to reconfirm their commitment to oil market stability and a continuation of output cuts agreed earlier in the year. When asked about how the group would respond to the Hamas attacks on Israel, a Saudi delegate coyly said: “we’ve dealt with the ups and we’ve dealt with the downs”.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Hydrocarbon producers’ energy reminder - OPEC big dogs Saudi, UAE, and Iraq gathered over the weekend for the UN MENA climate week and used the opportunity to make the case for hydrocarbons: “We have a responsibility to the world to provide the transition with enough hydrocarbon resources to make sure we are transitioning at a responsibly priced manner”, said the UAE’s energy minister. The schism between the climate camp and hydrocarbon producers feels as wide as ever ahead of next month’s COP28 summit.

• Rare earth prices spike - the price index for rare earths, key components in magnets for EVs and wind turbines, jumped last week by ~7% following a suspension of mining in Myanmar's Kachin State. The fact that a global price index shot up by 7% on a single shutdown shows the vulnerability of the supply chains needed for the energy transition.

• Hydrogen trains in Saudi - Saudi will next week start trials at the first hydrogen-powered trains in the Middle East. Zero-carbon transport is part of Saudi’s Vision 2030 plans.

🛢️ BOTTOM OF THE BARREL

Energy and geopolitics are Siamese twins.

History is littered with tales of energy driving politics and politics driving energy: an oil blockade pushed Japan to attack the US at Pearl Harbour in 1941; the Iranian Revolution in 1979 sparked a global oil shortage; Russia’s invasion of Ukraine last year sent global energy markets haywire. To name just a few.

The whims of generals, kings, and presidents are the great unknown for anyone brave enough to forecast energy markets. Energy’s inherent geopolitical nature is what makes it so unpredictable and fascinating in equal measure.

The tragic and unprecedented attacks on Israel over the weekend are a reminder of that unpredictability.

While it is far too early to tell what the consequences of the weekend’s events will be, one thing is for sure: tensions between Israel and Iran have hit worrying new highs and any escalation will reverberate deep into energy markets.

Israel has vowed a harsh response to an attack that very likely had Iranian involvement. Wars have been started over a lot less.

Any direct conflict between these two highly-militarized, confrontational, regional superpowers takes us down an extremely dangerous and uncertain path.

The world holds it breath.

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Thanks for reading. Have a day out there. 🛢️🛢️