Oil prices have been slowly but surely edging higher in July as rising optimism around Chinese demand combines with supply concerns to boost bullish sentiment.
Late July is usually the off-season for major market developments, but oil prices have been edging higher as the few factors out there are mostly bullish ones. China’s repeated pledges to stimulate economic activity as well as physical tightness that ramped up backwardation have been duly noted by the market, seeing ICE Brent move above $82 per barrel, the highest since May.
French oil major TotalEnergies intends to take full control of Total Eren, a power producer with hydro, wind, and solar plants, buying the remaining 70% and bringing Total Eren’s total enterprise value to $4.2 billion. UK-based energy firmShell agreed to sell its 35% stake in the Masela natural gas block in offshore Indonesia to Malaysia’s Petronas and Indonesia’s Pertamina for a consideration of $650 million. Egypt denies problems with giant gas field. The Egyptian government refuted claims that its supergiant Zohr gas field, located in the Mediterranean waters of the African country, was having problems after several news outlets reported that production started declining. Canada’s midstream giant TC Energy agreed to divest a 40% interest in its Columbia Gas and Columbia Gulf Transmission pipelines to Global Infrastructure Partners (GIP) for $4 billion.
Canada wants to cut oil subsidies. The Canadian government has set up a framework to revoke fossil fuels subsidies that it considers inefficient, becoming the first G20 nation to start a phase-out of state support for oil and gas even if ongoing subsidy agreements are to stay in place. US government offers funds to cut methane. The US Environmental Protection Agency will provide up to 1.55 billion in government funding to reduce methane emissions from the oil and gas sector, with half of the financial assistance allocated to state authorities. G20 can’t agree on emissions target. Energy ministers of the G20 group failed to reach common ground on curbing fossil fuel emissions, not even being able to agree on whether the final communique should stipulate a “phasedown” of “unabated” fossil fuels or not, worsening the outlook for COP28.
Chinese authorities have reformed natural gas pricing in the country, linking retail residential gas prices to distributors’ purchasing costs to avoid squeezing the margin of power-generating companies too much. The deregulation of natural gas prices in China has almost immediately engendered a wave of retail price increases, mostly between 10%-15%, with China Gas expecting its gross margin to increase 30% in 2023. The pricing reform is expected to boost two areas: coal-to-gas projects that were previously suppressed by the price caps and LNG imports as passing on purchasing costs to customers becomes the norm. LNG prices in Northeast Asia hit an all-time high of $69.9 per mmBtu last August, but weaker-than-expected Chinese buying and higher LNG supplies have depressed the JKM marker to $11 per mmBtu currently.
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