By Michael Kern
Oil markets are finally focusing on geopolitical risk, with disruptions in the Red Sea pushing Brent up toward $79 and WTI above $73.
- Shipping stocks have been on the rise since the Houthi threat in the Red Sea began to escalate, with the likes of Moller-Maersk, ZIM and Hapag-Lloyd adding some 15-20% over the past three trading sessions.
- Whilst the Suez Canal accounts for only 14% of global maritime crude and products transit, and even that mostly on the products side, shippers banning the Red Sea route will have a much more tangible impact on container shipping.
- Approximately 30% of global container trade passes through the Suez Canal and given that most container shipping deals are negotiated between December and March, container shippers might be looking forward to a much more upbeat 2024 than was initially expected.
- Asia-bound US LNG cargoes that were already diverted from the Panama Canal are now compelled to take the longer route across the Cape of Good Hope, which might provide some upside to falling JKM prices (currently at $12.4 per mmBtu).
Market Movers
- UK-based energy major Shell (LON:SHEL) relinquished four of its exploration blocks in the Perdido basin offshore Mexico, failing to find any commercial hydrocarbons and focusing on its US assets instead.
- Japan’s Tokyo Gas has agreed to buy Texas-based natural gas producer Rockcliff Energy from PE firm Quantum (NASDAQ:QMCO) Energy Partners for $2.7 billion, quadrupling its US shale gas output to 1.3 BCf/d.
- US shale explorer Callon (NYSE:CPE) Petroleum is reportedly considering strategic options including the sale of the company, with the $2.3 billion market cap producer seeking to join the list of recent M&As.
Tuesday, December 19, 2023
The continuous barrage of attacks on ships passing through the Bab-el-Mandeb strait has lifted oil prices, with Brent futures jumping back to $78 per barrel. Tankers transiting the Red Sea make up for some 12% of global shipping traffic, therefore a $2 per barrel increase might not fully reflect the ongoing supply disruption with market participants expecting it to wind down quickly. Should the mayhem continue, the upside will get even stronger.
Red Sea Attacks Disrupt Suez Canal Flows. The world’s largest shipping companies MSC, CMA CGM, and Moller-Maersk have stated they would avoid the Suez Canal as several container ships have been attacked by Houthi militants from Yemen, citing concern for safety.
EU Finally Adopts 12th Package of Russia Sanctions. The European Union formally adopted the 12th package of sanctions against Russia, banning the imports of non-industrial diamonds as well as LPG (albeit with a one-year transition period), however watering down the ban on tanker sales to Russia-linked firms.
CFTC to Probe Trading Manipulation. The US Commodity Futures Trading Commission (CFTC) has asked for even more data from market participants on executed swap deals, seeking to monitor more closely the potential manipulation of benchmarks, a year after Glencore’s $1 billion fine.
Brazil Ramps Up Taxes on Oil Producers. Brazil’s Congress approved a bill sponsored by President Lula da Silva to slap a 1% selective tax on oil and natural gas production, aiming to simplify a convoluted system of taxation, although upstream firms have criticized the increasing tax take.
Spanish Major Revives Venezuela Project. Venezuela’s state oil firm PDVSA and Spanish oil major Repsol (OTC:REPYY) signed a deal to revive production at their Petroquiriquire joint venture, encompassing three oil fields that currently produce only 20,000 b/d of oil and 40 MCf/day of gas.
Warren Buffett Approves of Oxy’s CrownRock Purchase. Berkshire Hathaway (NYSE:BRKa) bought some $590 million of Occidental Petroleum (NYSE:OXY) stock this past week, right after the US shale producer agreed to buy private Permian Basin-focused oil firm CrownRock for $10.8 billion.
Panama Canal Gets Some Rain Relief. The authorities of the Panama Canal will raise the number of daily transits from 22 to 24 starting mid-January, thanks to healthy precipitation across the past weeks lifting water levels along the canal’s many lakes, potentially lowering sky-high freight rates.
Chevron (NYSE:CVX) Speaks Out Against California Margin Cap. US oil major Chevron stated that California’s refinery margin cap not only jeopardizes downstream investments into the state due to an adversarial business climate but also negatively impacts renewable investments by oil firms.
UAE’s Oil Champion Moves into Fertilizers. ADNOC, the national oil company of the United Arab Emirates, agreed to buy a 50% stake in the fertilizer unit of European chemical firm OCI for $3.6 billion, taking its total shareholding in Fertiglobe to 86.2% once the transaction is closed.
Chile’s Lithium Scene Eyes Normalization. Chile’s leading lithium producer SQM and state-controlled copper company CODELCO have launched a roundtable format with indigenous companies, strengthening rumors that the two firms would start a public-private partnership.
UK Sanctions Spark Confusion at the LME. Just as the UK government banned British individuals and entities from trading physical Russian metals, including aluminum, copper, and nickel, confusion took over at the London Metals Exchange where 80% of aluminum stocks are of Russian origin.
Oil Majors Invest in Nigeria. Following Shell’s pledge to invest in Nigeria’s upstream, France’s energy major TotalEnergies (EPA:TTEF) committed to investing $6 billion over the coming years, ramping up output at offshore fields as well as improving methane detection and capture.
Salvador Wants to Join the Club of Oil Producers. The Central American country of El Salvador is set to amend its regulatory framework on oil and gas exploration, currently producing no hydrocarbons at all, to allow data and surveying companies to map prospective areas before oil majors step in.