Daily Energy Report

Saudi crude exports to China, Iran-US talks, China’s LNG imports, US solar power installations, IMF report on Saudi Arabia’s economy, and more

Here is the recording for the Twitter Space that we held earlier today regarding the news about an agreement between Iran and the US and its impact on the oil market:

https://twitter.com/anasalhajji/status/1666882924069650439?s=20

CHART OF THE DAY: Saudi Crude Exports to China Remain Steady  

Summary:

Figure (1) above shows China’s crude oil imports from Saudi Arabia, according to Kpler’s data.  The decline during the first 5 months of 2023 was only about 100,000 b/d from the averages of the previous two years. 

EOA’s Main Takeaway:

The decline of 100,000 b/d is attributed to the OPEC+ output cuts and has nothing to do with competition from Russian oil barrels in the Chinese market. As we discussed in previous reports, and with respect to Asia’s key oil markets, India and China, the boost in imports of Russian cargoes has been the result of an increase in demand on the one hand, and the replacement of crude supplies from the US and some African oil producers on the other. The level of Saudi exports to China has not changed much as a number, but it is way lower as a percentage since the rise in demand was met by increasing imports from Russia.

STORY OF THE DAY:

MEE:  Iran and US near interim deal on nuclear enrichment and oil exports

REUTERS: US denies report of nearing interim nuclear deal with Iran

Summary:

The White House today denied a report published earlier by MEE that Iran and the US were close to an interim deal. Washington called the report “false and misleading.”

EOA’s Main Takeaway:

• “We believe the deal when we see it”. That is what we wrote immediately after the news was out. Then the White House confirmed our view and denied MEE news.

• We have been there before.  Iran is producing and exporting at maximum.  Within the past 12 months, Iran’s floating storage declined by more than 50%. It will take time to increase production again. Hence, there is no justification for the decrease in oil prices today by 4.5% due to the news about an Iran-US interim deal.

• Iran’s frozen funds, which could be released, once and if, a deal is reached, are NOT in the US but in other countries, including South Korea and Iraq, due to US sanctions.  

              Source: Bloomberg, 2023

NEWS OF THE DAY

REUTERS: IMF says Saudi Arabia growth to slow to 2.1% in 2023 on oil production cuts

ARAB NEWS: Inflation in Saudi Arabia to remain at 2.8% in 2023 despite global challenges: IMF

REUTERS: Saudi Arabia economy grew 3.8% in Q1 boosted by non-oil activities

Summary:

In a statement published on Wednesday, the International Monetary Fund (IMF) said that while the OPEC+ output reductions would reduce Saudi Arabia’s real growth to 2.1% this year, non-oil growth is estimated to average 5% and “remain above potential as strong consumption spending and accelerated project implementation boost demand.”

The IMF statement also said that lower oil revenues in 2023 would move the fiscal surplus back to deficit, however, “potential additional dividends from Aramco could improve the fiscal position.”

Moreover, the IMF noted that inflation in Saudi Arabia “remains low and appears to be easing” despite growing economic activity.

EOA’s Main Takeaway:

• The Saudi economy remains dependent on oil revenues, but the share of the non-oil sector is increasing as planned in Vision 2030.

• The moderate economic growth with low inflation reflects the conservative fiscal policy of the Saudi government.  

• Tying the oil price needed to balance the budget to the Saudi oil policy needs further evidence. Several reports keep mentioning how Saudi Arabia needs a price of $80 to balance its budget, and for this reason, they will do whatever they can to get that price.  While historical data does not support this idea, the logic itself is false: Production is decreasing, and therefore Saudi Arabia might get the $80 price, but revenues are lower on lower quantities.

• We believe that the oil policy is independent of budget calculations.

REUTERS: Despite China heatwave, weak factory demand curbs coal prices, LNG imports

Summary:

Although a heatwave across China has been increasing power demand for cooling purposes, moderate demand in the industrial sector, as well as record high coal inventories are blamed for keeping prices “at two-year lows and limiting spot LNG imports,” Reuters reported.

EOA’s Main Takeaway: