Supply tightness in oil markets, combined with weaker-than-expected economic data from China and slightly higher crude inventories in the US, have combined to limit, or perhaps just pause, the upward trend in oil prices of recent weeks.
The reality is that the strategy implemented by Saudi Arabia through OPEC+, limiting exports, which by the way favors Russia, establishes a floor for prices. The uncertainty of the Chinese economy and growing environmental pressures negatively impact the investment appetite of oil companies, which is maybe the best way to counteract OPEC’s strategy in the short and medium term. This combination of supply restrictions seems so far to be effective in offsetting the negative effect on prices of economic uncertainty, and it places the Saudis, with their growing spare capacity, as the swing producer.
The Chinese economic situation does not look very healthy. Information released by its Customs Administration indicates a further drop in exports, while imports are also falling in response to weak local demand. However, analysts maintain that, eventually, the government will apply stimuli to reverse this trend.
The strained relations between the two largest economies in the world continue to worry, especially regarding the supply of technology and sophisticated equipment, which are also a part of the equation. The North American analyst, Daniel Yergin, in a recent interview, noted the importance of the Chinese economy on oil prices. He warned about the vision of some North American executives and investors who would like to decouple the two economies: “Conscious Decoupling”. This, says Yergin, is a force that not only promotes the deglobalization of the world but ignores how integrated the two economies are and the reciprocal damage that would be caused by the decoupling.
Even so, oil demand remains immune to the pessimistic Chinese news and resistant to the expectation of more recessive measures by central banks; showing an increase to 103 MMbpd, a historical record and consistent with the increase in demand forecast by the OPEC.
The demand, although surrounded by latent threats, and with supply under the control of OPEC+, has maintained the upward trend, but with volatility to accommodate the interpretation by the market of eventual news that could affect prices.
Thus, prices closed, for the seventh consecutive week, with a slight increase despite a drop in the middle of the week. Brent and WTI were trading at the close of the markets on Friday the 11th, at $/b 86.81 and $/b 83.19 respectively.
Other news of interest for the energy market:
· Iran hopes to increase its oil production by 250,000 barrels per day (bpd) to reach an output of 3.5 million bpd by the end of next month, the NIOC president said. Iran and the US have reached an agreement to exchange prisoners and eventual access to $6 billion frozen in South Korean banks. This is in contrast with the recent US warning to tankers to avoid Iranian territorial waters due to tensions between the two countries.
· ExxonMobil is reviewing its oil and gas operations and interests in Argentina's Neuquén basin. Officially, its Argentine subsidiary is looking for investors to “Farm Down” its participation, but the sale of its assets is not ruled out. Other sources report that Exxon is not satisfied with the progress of its activities at Vaca Muerta in the Neuquén Basin. The news, rather than being interpreted as an individual action by Exxon, is an indication of the complexity of developing resources in this part of the world, and could affect the activities of other companies in the area.
· Droughts not only modify the navigability of the Rhine River in Germany. There is a much more severe effect on the operations of the Panama Canal. The dry season is wreaking havoc on the water levels in Gatun Lake, which has severely limited the use of the canal. Transportation difficulties result in high fuel prices.
ENERGY TRANSITION - Lithium.
When the issue of lithium is addressed, we find ourselves with one of the most crucial materials to facilitate the energy transition. The transformation of the world’s transport, system from a model based on internal combustion engines to one based on electric mobility, depends on the massive use of batteries; they in turn depend on the availability of this soft alkali metal silvery-white metal.
Lithium (Li, by its chemical symbol) was discovered in 1817 by the Swedish chemist Johan August Arfwedson, while he was studying the mineral petalite in the laboratory of Jöns Jacob Berzelius. Arfwedson detected traces of a then unknown element, which Berzelius named “lithium” derived from the Greek word for stone,“ lithos ”. Petalite had been discovered in the late 18th century, by the Brazilian chemist and statesman José Bonifácio de Andrade e Silva, in a mine on the island of Utö, Sweden. It was not until the British chemist Augustus Matthiessen isolated lithium, using electrolysis of lithium chloride, that the element was produced in usable quantities.
During the “Cold War”, in the 1950s, the use of lithium in thermonuclear weapons as a solid fusion fuel gained importance. The United States government became the main producer of lithium at that time.
In the 1970s, lithium emerged as a key component of rechargeable batteries. The electrochemical potential of lithium made it ideal for high-energy-density batteries. However, these early lithium batteries were not commercially viable due to safety concerns and a lack of knowledge about the intricacies of lithium-ion chemistry. It was later improved upon by Stanley Whittingham, John Goodenough, and Akira Yoshino, who developed the modern lithium-ion battery in the 1980s.
It wasn't until the 1990s that Sony and Asahi Kasei launched the first commercial lithium-ion battery, paving the way for lithium-ion batteries to revolutionize portable electronics. Today it is used in a wide range of applications, including smartphones, laptops, and wearable devices.
It is in the first decade of the 21st century that electric vehicles and energy storage systems begin to use lithium-ion and lithium-polymer batteries, which caused the demand for lithium to skyrocket and is expected to grow into the future.
Lithium possesses distinctive properties, including its exceptionally low density of 0.53 g/cm³, its low melting point at 180.5 °C, and its high electrochemical potential that favors lightweight, high-energy-density batteries. Lithium-ion batteries store 3 times more energy than lead-acid batteries of the same weight. This allows for longer-range electric vehicles.
Its low density and high resistance make lithium a valuable material in aerospace and satellite applications, and in the production of ceramics and glass, improving alloys in metallurgy. Furthermore, lithium is used in the chemical industry and has applications in air conditioning systems, among other uses. Its contribution to the stabilization of the mood of human beings makes it an essential component in pharmaceutical products to treat conditions such as bipolarity.
Lithium is found in various geological formations worldwide, primarily in the form of lithium-rich minerals or as dissolved lithium in underground brine deposits. In some geological contexts, especially in areas with high levels of mineralization, there may be an overlap between lithium and copper deposits. This coexistence may have implications for mining operations and processing, as well as the economic viability of extracting both metals from the same deposit.
The most common sources of lithium are:
Hard Rock Deposits (Lithium Minerals)
Spodumene: This is the most common lithium-bearing mineral. Large deposits of this mineral are found in Australia, as well as in other countries such as Canada, China, and Zimbabwe. The minerals are processed, concentrated, and converted into lithium compounds. This is currently the most common source and represents more than 60% of the world's lithium production.
Brine Deposits:
Saline Lakes: Some of the largest lithium reserves in the world are found in brine deposits in saline or saline lakes, particularly in the “Lithium Triangle” region of South America, which includes Argentina, Chile, and Bolivia. The process involves pumping lithium-rich brines underground to the surface and evaporating the water in extensive pools for 12 to 18 months. The remaining lithium compounds are then processed.
Based on preliminary data released by the US Geological Survey (USGS), estimated global lithium mining production in 2022 was ~130,000 metric tons of lithium (excluding US), up 21.5% from 2021 (107,000 tons). Total reserves are estimated at 26 million metric tons for the same year. The countries with the largest lithium reserves and production are [1]:
Country | RESERVES[2] mtm | Production TM |
Chili | 9300 | 39000 |
Australia | 6200 | 61000 |
Argentina | 2700 | 6200 |
China | 2000 | 19000 |
The same report states that the global lithium end-use markets are batteries, 80%; ceramics and glass, 7%; lubricating greases, 4%; flux powders for continuous casting molds, 2%; air treatment, 1%; doctor, 1%; and other uses, 5%.
As with other metals associated with the energy transition, China emerges not only as an important producer but also as the main processor of this metal. According to the International Energy Agency (IEA), the Asian giant controls 65% of processing capacity.
On the other hand, the IEA also forecasts that lithium demand will grow to 1,209 Mtm by 2050 (13 times today's demand) to meet global warming mitigation scenarios – 85% of that new demand will be driven by electric cars. It should not be forgotten that this type of projection does not consider the impact of new technologies, price fluctuations, supply complexities, or consumer behavior. Recycling lithium-ion batteries will also be crucial, not only to ensure the supply of raw materials but to mitigate the environmental impact of new mining.
The interest in lithium is such that the big oil companies are directing initiatives in that direction. ExxonMobil (NYSE: XOM) CEO Darren Woods recently told analysts that the oil company can produce "lithium at a much lower cost than traditional mining." For its part, Chevron Corp. (NYSE: CVX) said recovering lithium falls within the company's "core capabilities."
Existing lithium reserves appear to be able to support projected demand and more. In fact, the USGS estimates that there are additional resources of the order of 98 million tons globally, both in traditional producing countries and in countries such as Bolivia, Germany, and Congo, among others. To access these resources, geopolitical, economic, environmental, and community issues will have to be resolved.
Substitution of lithium compounds in batteries, ceramics, greases, and manufactured glass is possible. Examples are calcium, magnesium, mercury, and zinc as anode material in primary batteries; calcium and aluminum soaps as stearate substitutes in fats; and sodium and potassium fluxes in the manufacture of ceramics and glass.
Thus, lithium is in the crosshairs of a world that has self-imposed to stop, or at least mitigate, its addiction to fossil fuels, replacing the inventions of the Germans Otto and Diesel, with the electric motor. In this new energy economy, as the figures show, there is an essential opportunity for the Latin American region. It would be inexcusable if we do not prepare ourselves to take advantage of the potential of this new “gasoline”, by preparing to manage the social, environmental, and political costs that this exploitation, and preferably industrialization, would undoubtedly entail.
Venezuela
Political Events and Others
The economic and political situation in Venezuela is complex to analyze, given the multivariable crisis: when something works, other things stop working, and if it is a matter of fixing, other things are damaged: the proverbial Venezuelan hell.
For example, when trying to solve the problem of supplying the domestic market, Venezuelan refineries managed to process a greater volume of crude, but at the expense of reducing exports, which affect foreign exchange earnings from the sale of hydrocarbons.
Furthermore, although the bulk of domestic gasoline is sold in dollars at $/L 0.5, which would be equivalent to more than $70/bbl, the chain of custody of this money, largely in cash, is a leaky one. Additionally, the contraband of gasoline remains a problem.
The economy begins to show signs of exhaustion, since neither the income in foreign currency nor the collection of taxes from SENIAT is sufficient to finance the levels of public spending required to prepare the electoral terrain. Also, avoid wage protests, which are once again on the rise remain unanswered.
The strategy of trying to revive the economy through public spending, the only tool remaining in the regime's bag, will cause higher levels of inflation, increased costs, and further erosion of the purchasing power of Venezuelans. Renowned economists estimate that inflation and the exchange rate, by the end of the year, will reach 400% and 60 BS/$, respectively.
This situation has mobilized the representatives of the regime to try to shore up economic conditions, but without room to manipulate, with an eye on the elections.
In Portugal, the courts decided in favor of the regime, which will now have control of some currently frozen bank accounts. Some analysts think that this is a direct result of the elimination of the “interim government” by the opposition. For now, legal success, which involves $1.5 billion, is up in the air, since accessing the accounts could be subject to OFAC approvals.
The exchange rate showed a slight improvement. On Friday, the national currency was traded in the parallel market at Bs./$33.42, a variation of -1.4% for the week, but a loss of value of 5.5% for the month.
Hydrocarbons Sector.
Production: Oil activity this week was free of power outages, and part of the lost production was recovered in northern Monagas. Thus, production was higher than the previous week, 732 Mbpd, geographically distributed as shown below:
REGION Mbpd
· West: 121 (Boscan 53)
· East: 155
· Orinoco Belt: 456 (Chevron 73)
· Total: 732 (Chevron 126)
Production by Chevron remained constant, as has been the case recently: some 46 Mbpd were upgraded at José, yielding 44 Mbpd of Hamaca crude, the rest of the crude in the belt was diluted with 9 Mbpd of heavy naphtha, resulting in 36 Mbpd of Merey 16 crude.
Refining: The four main refineries were active, processing 338 Mbpd of crude oil and intermediate products. But attempts to get the Paraguaná catalytic cracking units running have not yet achieved their goal, so gasoline production continues to be severely curtailed.
Exports: So far in August, exports seem to replicate those of last month, with a slight reduction in Chevron's exports, 136 Mbpd, due to the different combination of segregations exported from the Faja crude oil. Shipments to China and Europe are lagging, as is generally the case during the first half of the month, while 34 Mbpd have been shipped to Cuba. It is expected that close to 100 MBPD of residual fuel will be exported during the month, .
CITGO Petroleum: The company published its results for the 2nd quarter of the year, where the following figures stand out:
Net income of $380 million and EBITDA of $642 million, compared to net income of $937 million and EBITDA of $1.4 billion, for the first quarter of 2023
Crude oil processing in the second quarter was 761,000 barrels per day (bpd) with 94% crude capacity utilization, compared to 772,000 bpd and 96% crude capacity utilization in the first quarter of 2023.
The reduction in financial results, compared to the 1st quarter, was mainly due to a combination of lower gasoline production and higher distillate production, as a result of scheduled maintenance work. This coincided with a market where gasoline showed substantially higher margins than diesel on a quarter-over-quarter basis.
Thus, the reduction in the margin of producing diesel, of -49% in the USGC (US Gulf Coast) and -31% in Chicago, could not be offset by the increase in the margin of producing gasoline of +12% in the USGC and +37% in Chicago. The other important factor was the reduction in the price difference between light and heavy crude oil, which increased the price of heavy crude oil and affected the economies of the Lemont (Chicago) and Corpus Christ (USGC) refineries.
Carlos Jorda, the company's executive president, commented: “We delivered another solid quarter, both operationally and financially”. “We are entering the third quarter in a healthy position given our strong liquidity and operating performance.”
No comments:
Post a Comment