Russia
Russia has become the largest oil exporter to China as it discounted crude to Beijing amid sanctions over Ukraine. Their imports rose by 55% from a year earlier to a record level in May, knocking Saudi Arabia from the top spot despite their export volumes going up 9% year-on-year at 7.8 million tonnes. The main loser of exports into China was the U.S., whose export volumes to China were down 52% year-on-year at around 0.5 million tonnes and Brazil which was down 19% at 2.2 million.
Russia also overtook Saudi Arabia to become India’s second-largest crude supplier in May, behind Iraq, Reuters reports. India imported 819,000 b/d of oil from Russia on average in May, nearly triple the 277,000 b/d it imported in April.
Russian seaborne exports are at record levels in the past 4 years at nearly 160 million barrels. This possibly means that we are seeing a shift in geographic supply and demand. With sanctions on Russia, the supply of exports to Europe is reducing which has caused concerns of limited supply and increasing prices. That supply seems to be shifting to Asia. With rising profits for Oil producers, how much are the sanctions hurting Russia? Demand is still expected to outpace supply but with Russian supply finding new consumers, the landing might not be as hard.
Chinese lockdown and demand
China continues to do business with countries facing political sanctions. Russia on their discounted crude oil and Iran. China has kept taking Iranian oil, usually passed off as supplies from other countries. The import levels are roughly equivalent to 7% of China’s total crude oil imports. China’s overall crude oil imports rose nearly 12% in May from a low base a year earlier to 10.8 million bpd, versus the 2021 average of 10.3 million bpd.
Supply worries are likely to persist as major OPEC+ oil producers may not have enough spare capacity to meet recovering demand from China if Covid-19 lockdown measures ease in the country, according to DailyFX analyst Leona Liu.
Lockdown in China continues. Demand from China has been a rollercoaster ride. This is something to keep an eye on as changes in demand in commodities could influence prices further as the lockdown eases.
OPEC+
OPEC oil production figures for May showed a drop in month-on-month production of 176,000 barrels per day (bpd). OPEC’s total production last month was an average of 28.508 million bpd with lower production in Equatorial Guinea, Venezuela, Iran, Iraq, Gabon, Nigeria, and most significantly in Libya which was down by 86,000 bpd. Although Saudi Arabia did increase production, this was not enough to offset losses by other members of the oil group.
Despite fears of a shutdown of Libyan ports and oil-producing areas from protests, the country is currently maintaining oil output at about 700,000 barrels a day, according to western diplomats and analysts. The United States has renewed efforts to bring the different sides of the Libyan civil war to an agreement to increase the country’s oil output which has been disrupted by civil strife since 2011.
USA
The aggressive U.S. interest rate hike of 75 basis points become the trigger of a commodity price collapse, indicating that market participants started to believe that the economic policies and lower trade barriers would lower commodity prices and increase supply. An anchor commodity, WTI crude oil, corrected more than 12% over the past five trading days.
Biden escalated a war of words with Big Oil ahead of talks. He will challenge major oil companies to come to a meeting with his energy secretary later this week with ideas on how to bring back idled refining capacity (Reuters).
The United States is considering removing some tariffs on China and suspending the gasoline tax to help curb inflation. U.S. President Joe Biden was planning to set up a conference with Chinese chairman Xi Jinping soon to discuss these measures.
Ukraine-Russia War
Nothing new to report other than the war continuing to influence inflation around the world, especially with oil and gas products, and food prices due to supply cuts. The cut in supply increases prices for other alternatives. Almost 50 nations rely on the Russian Federation and Ukraine for at least 30% of their wheat imports. 26 nations rely on these two countries for more than half of their wheat imports. The partial impact on inflation will continue as the war goes on.
Europe
The increasing concern about high oil prices in Europe is forcing them to look further afield for their oil supplies. The first European imports in 2 years from US-sanctioned Venezuela are resuming.
Russia may cut off gas to Europe entirely as it seeks to bolster its political leverage amid the Ukraine crisis, the head of the International Energy Agency (IEA) said on Wednesday, adding Europe needed to prepare now (Reuters). The European Union has sanctioned Russian oil and coal but has held off from banning gas imports due in part to its heavy reliance on supplies from Moscow.
It has also been said that the European Union will temporarily shift back to coal to cope with slowing Russian gas flows, an EU official said on Wednesday, as a tight gas market and rocketing prices set off a race for alternative fuels. Europe will temporarily pursue fossil fuel alternatives to Russian gas in light of President Vladimir Putin’s actions, but these moves will not derail longer-term climate change objectives, a senior European Commission official said.
Australia
The world could see extreme actions from countries to manage inflation. An example of this includes Australia’s main wholesale electricity market getting suspended because of a surge in prices. Australia is one of the world’s biggest exporters of coal and liquefied natural gas but has been struggling with a power crisis since last month. Three-quarters of the country’s electricity is still generated using coal. It has long been accused of not doing enough to cut its emissions by investing in renewables.
In recent weeks, Australia has felt the impact of disruptions to coal supplies, outages at several coal-fired power plants and soaring global energy prices. Suspensions are due to be lifted this Thursday. However, it shows that there is a possibility of market intervention as inflation continues to rise.
Carbon
What does this mean for our Carbon emissions targets? As alternative short-term solutions are explored to manage supply and demand with rising costs the question of how this will impact our net-carbon emission targets comes to mind. Only time will tell if this disrupts or accelerates our progress to renewable energy and meeting our net-zero targets.