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EOA Daily Energy Report
This is the EOA’s first and trial issue of its new Daily Energy Report. Our official launch will take place on Wednesday, February 8.
The Daily Energy Report provides concise commentary on various developments in the energy markets and will be published five times a week (around noon US EST). Our added value will help the readers understand the significance and impact of different events in the markets, with a focus on the oil and gas markets.
For now, the report will be divided into three sections: Chart of the Day, Story of the Day, and News of the Day. In addition, a special article will be published once a week, and the EOA will also offer original commentary on some breaking news as it happens.
The yearly subscription is $420 (or $50 per month). Please note that the Daily Energy Report subscription is different from that of the in-depth EOA Weekly Energy Newsletter.
We value our readers’ feedback, so please feel free to share any thoughts you may have as we will be continuously updating the Daily Energy Report during the first weeks following the launch.
Thank you very much!
The EOA Team
CHART OF THE DAY
China’s Crude Oil Imports by Country
Source: Kpler, 2023 & EOA, 2023
While the chart shows that “direct” oil imports from Russia have declined in recent months, China has been receiving relabeled Russian oil cargoes through other countries (such as Malaysia and the UAE).
As China’s crude oil imports from Iran have recently increased, indirect imports of Iranian oil via third suppliers have also risen remarkably.
Saudi Arabia and other Gulf States have not lost their shares to Russia in China’s oil market. The oil producers that have been affected by China’s imports of additional discounted Russian oil are the US and several African countries.
China’s direct crude oil imports from Venezuela have recently increased.
EOA’s Main Takeaway:
Oil has continued to freely flow to China from embargoed countries, namely Russia, Iran, and Venezuela. Western sanctions on these three oil producers are not that bullish for the oil market. China is playing the game carefully, without increasing tensions with the US and the EU. It is also worth noting that the US State Department announced today that US Secretary of State Antony Blinken’s visit to China, which was planned for next week, has been postponed after a spy balloon was spotted over the US.
STORY OF THE DAY
Ahead of an EU ban on Russian petroleum products which is expected to go into effect on Feb 5, Reuters reported today that some Chinese independent refineries have been increasing their imports of “discounted fuel oil blended from Russian barrels”. Citing traders and other sources, Reuters said that some independent refiners have been resorting to purchasing Russian fuel oil to use it as “low-cost feedstock” as they face “a shortage of government crude oil import quotas.”
As western restrictions on Moscow’s oil exports intensify, Russia is shifting its oil shipments to Asia where fuel oil for instance its blended with other oils to mask its Russian origin. These activities are taking place in different areas, including in Malaysian waters which for years now have been used by blacklisted oil producers to conceal the origin of oil cargoes through ship-to-ship transfers.
EOA’s Main Takeaway:
The upcoming EU sanctions on Russia’s petroleum products will have a limited impact on the oil markets. However, the sanctions could worsen diesel shortages in some countries.
NEWS OF THE DAY
EOA’s Main Takeaway: Delayed maintenance implies a heavy maintenance season. This is particularly bullish for diesel, which could lead to a rise in US imports and increase global competition.
2- BLOOMBERG: Cyberattack sends derivatives trading back to the 1980s
EOA’s Main Takeaway: It’s important to bear in mind that we only hear about successful attacks. In the energy industry, cyberattacks on energy infrastructure in the US and Europe have become frequent. These have included the cyberattack on the Colonial Pipeline in May 2021 which had a disastrous impact.
3- KOMMERSANT VIA REUTERS: Russia may switch to Brent-based oil taxes
EOA’s Main Takeaway: This is a non-event. Russian President Vladimir Putin cannot afford the political backlash due to lower oil production and exports. The opposite may happen: lower taxes. In the EOA 2023 Oil Market Outlook, we said that lower oil prices accompanied by large discounts on Russian oil will have a significant impact on Moscow’s finances. Under such circumstances, the Russian government will have to further reduce taxes to keep oil exports flowing at high rates, otherwise, companies will start shutting in oil production.
EOA’s Main Takeaway: The drop in Russia's energy revenues last month was not due to western sanctions (G7-led price cap and the EU ban on Russian seaborne crude exports) which went into effect on Dec 5, 2022. It was mostly due to a decline in global oil prices by more than 20%. It’s important to bear in mind that the discount on Russia's Urals crude oil began way before sanctions were imposed on Moscow’s oil exports due to high freight rates for ships loaded with Russian oil.
EOA’s Main Takeaway: Such warnings don’t work. Washington has warned the UAE and other countries over evading US sanctions on Iran; however, we have not seen a major shift in their businesses with Tehran. We don’t expect different results with respect to sanctions on Russia.
EOA’s Main Takeaway: In this case, China has reduced its record-high exports in the past few months. While this is not a major development, we would like to remind our readers that the world needs additional petroleum products, which are hard to secure throughout this winter season.
EOA’s Main Takeaway: The frequent power outages across the US raise questions about the stability of power supplies to households, and to the vital transportation system in the country. Increased electrification in the future implies a worse impact in the event of blackouts. Meanwhile, we are waiting to see how the current ice storm and power outages will impact oil and gas production in Texas.
8- US Rig Count
Baker Hughes today reported a decline in the US rig count last week by 12 to 759.
The oil-directed rig count decreased by 10 to 599. In the tight oil plays, the oil-directed rig count decreased by 5 to 496, while in the Permian, it decreased by 5 to 345, and in the Granite Wash it fell by 1 to 9. Turning to non-tight oil areas, the oil-directed rig count decreased by 4 to 81, including in the Gulf of Mexico where it declined from 13 to 12. It is in the non-tight oil plays where most of the decrease in the rig count in recent weeks has taken place.
Meanwhile, the gas-directed rig count’s net decrease last week was 2, falling to 158 (the Permian added 2).
The main takeaway from today’s rig count is that the oil–directed rig count is decreasing in the Gulf of Mexico while the gas-directed rig count is increasing in the Permian. It remains to be seen if the decline in the oil-directed rig count in the Permian last week was a blip or a new trend.
Figure (2) below shows the number of rigs in the tight oil plays.
Oil-Directed Rig Count in Tight Oil Plays
Source: BH, 2023 & EOA, 2023