13th October 2023

Good morning team, this is Both Barrels. Time to wrap the week up. Here’s what’s what:

• 🤷 US oil output surging (maybe)

• 🤝 Aramco deepens ties in China

• 💰 Traders filling O&G financing void

• 🍛 The most important chart in the energy debate?

plus plenty more. Let’s get to it…

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• US oil output surging (maybe) - the EIA’s weekly report showed that US crude production jumped by 300 kb/d last week to a new record of 13.2 mmb/d. Output has now risen by 1 mmb/d since August. Notably, this record high comes at a time when the rig count is still well off its peak, implying productivity gains. Disclaimer: these weekly stats are notoriously unreliable, though. Let’s wait for the monthly figures before getting too excited.

• EIA confirms large crude build - US crude inventories climbed by 10.2 mmbbls last week, the largest single build in 8 months.

• Laying down the law on Russian oil price cap - the US has slapped sanctions on two tanker companies from Turkey and the UAE after finding they transported Russian crude which sold above the $60/bbl price cap. This is the first time the US has enforced these sanctions.

🕌 The Middle East

• $35m a day - this is how much revenue Iraq is missing out on due to the closure since March of the 450 kb/d crude export pipeline to Turkey. There’s been lots of mixed messages from both sides of the dispute in recent weeks but it looks like a resolution and reopening is close.

• Iran and Russia O&G MoU - the two producers have signed a vague MoU related to developing joint research centers for their oil & gas industries.

⛩️ Asia & Oceania

• Aramco deepens China refining ties - the Saudi giant is acquiring a 10% stake in Shandong Yulong Petrochemical Co which is building a refinery that can process 400 kb/d of crude in eastern China. This follows the news a few weeks ago that Aramco is also in talks to acquire a minority stake in another Chinese refinery. Looks like the world’s largest oil company is keen to lock in long term customers with some good old vertical integration.

🦁 Africa

• Tanzania’s new licencing round - the East African nation is set to launch its fifth oil and gas licensing round by June next year, which will provisionally include 26 blocks. Lots of gas has been discovered offshore Tanzania but production is still low today at ~1.5 bcmpa due to a lack of investment.

🗿 Central & South America

• Short and not sweet - the CEO of Petroecuador, Ecuador’s state-owned oil company, has resigned from his position after just 6 months, citing family reasons. His brief stint had been marred by corruption allegations and anti-oil activism. Ecuador produces ~400 kb/d of oil.

🌍 GEOPOLITICS & MACRO

• Gaza evacuation plan - Israel has asked the UN to help evacuate 1 million people from the besieged enclave. It has dropped over 6,000 bombs on Gaza this week in retaliation for the Hamas terrorist attacks and is expected to launch a ground offensive soon in an attempt to “eradicate” Hamas and rescue hostages. As Israel’s response intensifies, concerns are growing about the civilian casualties in Gaza.

• Iran’s $6bn back on ice - following Hamas’ attack on Israel, the US has convinced Qatar to freeze $6bn of Iranian funds that were set to be released to Iran as part of a recent prisoner swap agreement. I suspect that won’t make Tehran too happy.

• OPEC production creeps up - OPEC’s latest monthly oil market report has shown the cartel’s oil output rose by 0.27 mmb/d in September to 27.8 mmb/d. Highlights include a jump of 140 kb/d in Nigeria and Iran reaching a new multi-year high of 3.1 mmb/d.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Traders & African banks financing hydrocarbons - as many Western banks opt out of lending to oil & gas companies, traders like Trafigura and banks in the developing world are stepping in to fill the void. The irony of the “divest” campaign among Western institutions is that it’s probably a negative for the environment as those who end up financing these projects (there will always be someone else) often have lower environmental standards than the virtue-signalling organisation they have replaced. Who would you rather have influence over the asset?

• Transatlantic hydrogen - a group of US hydrogen producers are targeting the first shipment of clean hydrogen to Europe by 2026. They are planning volumes of 3 mtpa by 2030 which will contribute to the EU's 10 mtpa import target.

• Climate mandates hitting European airlines - bosses of European airlines have warned that tough EU environmental mandates, such as sustainable aviation fuel requirements, are damaging their international competitiveness. Higher airline prices and industry consolidation are the likely outcome, they said. This is a familiar story as many European sectors struggle to compete on the global stage, in large part thanks to damaging energy policy that is pushing up costs.

• New York rejects wind developers demands - a regulator has denied the request by Orsted, Equinor, and others to more than double the price that the government would guarantee for power generated from planned offshore wind farms. Wind developers around the world are struggling with rising costs and realizing their projects are well out of the money.
  

🛢️ BOTTOM OF THE BARREL

We think this is one the most important but overlooked charts in the energy debate…

Food prices are determined by oil prices. So oil shortages mean that the world’s poorest people starve. Simple as. Just Stop Oil and their friends would do well to remember that:

👋 BEFORE YOU GO 

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Thanks for reading. Have a great weekend. 🛢️🛢️