1. Venezuela braces for impact after US sanctions reinstated
– The Biden administration reimposed sanctions on Venezuela’s oil industry after its six-month waiver expired on April 18, with the White House granting oil companies a 45-day grace period to shut down their operations .
– The US waiver was linked to President Maduro’s agreement to hold a free and fair presidential election in July and allow opposition politicians to participate, but Maria Corina Machado and her replacement Corina Yoris did not not allowed to appear.
– Thanks to the temporary reprieve from sanctions, Venezuelan state oil company PDVSA has increased production by some 150,000 b/d, with oil production last month surpassing 870,000 b/d.
– Latin America could come under heavy pressure, although the Biden administration has hinted at a possible reinstatement of the waiver in case Maduro allows opposition candidates to run.
2. Traders are hedging geopolitical risks with record options
– Oil prices fell this week, with ICE Brent losing around $3 per barrel and trading in the $88-$89 per barrel range, but interest in the oil market is increasingly shifting to options.
– Call options are currently trading at their largest premium to bearish puts since October, with a bias of around 5% above puts, as traders begin to hedge their exposure against price increases.
– Options trading volume exceeds record levels, with latest…
1. Venezuela braces for impact after US sanctions reinstated
– The Biden administration reimposed sanctions on Venezuela’s oil industry after its six-month waiver expired on April 18, with the White House granting oil companies a 45-day grace period to shut down their operations .
– The US waiver was linked to President Maduro’s agreement to hold a free and fair presidential election in July and allow opposition politicians to participate, but Maria Corina Machado and her replacement Corina Yoris did not not allowed to appear.
– Thanks to the temporary reprieve from sanctions, Venezuelan state oil company PDVSA has increased production by some 150,000 b/d, with oil production last month surpassing 870,000 b/d.
– Latin America could come under heavy pressure, although the Biden administration has hinted at a possible reinstatement of the waiver in case Maduro allows opposition candidates to run.
2. Traders are hedging geopolitical risks with record options
– Oil prices fell this week, with ICE Brent losing around $3 per barrel and trading in the $88-$89 per barrel range, but interest in the oil market is increasingly shifting to options.
– Call options are currently trading at their largest premium to bearish puts since October, with a bias of around 5% above puts, as traders begin to hedge their exposure against price increases.
– Options trading volume exceeds record levels, last week more than 1 million call options were traded on the global benchmark Brent crude index, mainly focusing on the 95 thresholds and 100 dollars per barrel.
– Oil traders currently held more than 3 million barrels of options contracts at prices above the $250 per barrel mark in June, reflecting the extent of hedging.
3. U.S. coal production falls due to high inventories and low demand
– Weekly U.S. coal production fell to a 22-year low for the week ending April 13, according to EIA data, due to high inventories, falling consumption and from the continuous pressure of cheap natural gas.
– National coal production fell to about 7.5 million short tons, down about 1.3 million tons or 15% from two weeks earlier, with production declines recorded in all major Appalachian, Illinois Basin, and Powder River producing basins.
– As Baltimore, the second largest coal export center in the United States, weakened after the collapse of the Francis Scott Key Bridge, weekly export data was also disappointing – according to Kpler, the average pace of loadings, at 1.4 million tonnes per week, is the lowest since July 2023.
– Despite a notable shift from coal to gas, leading to a 17% year-over-year decline in U.S. coal consumption, coal inventories were the highest in three years at the end of 2023, totaling 154 million short tons.
4. China becomes the world leader in wind energy
– Consolidating Beijing’s dominance in renewable energy, Chinese wind farms produced more than 100 TWh of electricity in March, as much as all of Europe and North America combined and the total highest monthly rate ever recorded by a single country.
– Chinese wind production increased by more than 25% year-on-year; however, growth is expected to decrease over the next few months as wind speeds typically slow during the summer months.
– China still depends mainly on coal, which represents 62% of national electricity production, but wind power, which represents 11.4% of its production, could soon overtake hydroelectricity and become the second source of electricity .
– Beijing controls about 60% of the world’s wind turbine production capacity and nearly 50% of wind production capacity, prompting the European Union to investigate Chinese wind companies and potentially impose tariffs on them.
5. LNG is gaining ground as a transportation fuel
– LNG-powered ships remain the first choice for low-carbon shipping, writes Rystad Energy, despite the emergence of new dual-fuel methanol and ammonia ship engines.
– There are more than 2,400 ships equipped to operate on LNG worldwide and another 1,000 carriers in global order books, but most of these are still LNG carriers that use boil-off gas as a transportation fuel .
– Container ships and car carriers have become one of the main drivers of the adoption of LNG as a shipping fuel, with 75% of new orders going to dual-fuel LNG engines last year, while carriers passengers and general cargo ships are still lagging behind.
– Ship-to-ship LNG bunkering remains unevenly distributed across the world, with Europe having 85 LNG bunkering ports while Asia has only 26 ports and Africa with virtually no LNG bunkering capacity.
6. Russia’s metals ban expected to bring more volumes to Chinese markets
– With the London Metal Exchange and CME banning trade in Russian aluminum, copper and nickel, China is poised to consolidate its position as Moscow’s buyer of last resort for key raw materials.
– Russian aluminum already accounted for 76% of all Chinese imports, with volumes doubling year-on-year to 1.54 million tonnes of the primary metal, while China’s share of Rusal aluminum increased from 8% in 2022 to 23% in 2023.
– According to Bloomberg, Russia represented 91% of LME aluminum stocks at the end of March, while for copper and nickel their share in total stocks was 62% and 36% respectively.
– The metals ban is expected to increase liquidity on the Shanghai Futures Exchange, just as Beijing tries to gain greater power over global commodity prices.
7. The Panama Canal is struggling to find its mojo again
– Despite improving water conditions at the Panama Canal’s Gatun Lake and the Panama Canal Authority adding an additional daily slot for transits starting June 1, U.S. LNG shippers are avoiding always the waterway.
– The Cape of Good Hope has become the preferred route for US LNG supplies, also overtaking the Suez Canal with as many as 27 transits last month, driven by shippers’ concerns over Red Sea missile attacks .
– Daily transits through the Panama Canal’s Neopanamax locks are expected to increase from seven to eight, but cheap LNG cargo with Atlantic Basin day charter rates of around $33,000 per day makes the Cape of Good Hope “fairly cheap” and without delay.
– Panama Canal restrictions are expected to gradually ease through 2024, with late April expected to bring steady rainfall and continue for a few months, with the Canal Authority considering full normalization of transits by 2025.
