Thu. Feb 29th, 2024

Prof. ST Hsieh

Director, US-China Energy Industry Forum


[email protected]

  1. Crude Oil Price is skyrocketing

WTI Crude Oil Benchmark closed on Friday at $84.83 bbl, went as high as $87.46 bbl during the week. Next supporting level is expected to be around $90 bbl. In fact, there are predictions of $100 bbl. There are multiple reasons for this bullish market but basically it is due to tightening of supply because of geopolitics: the middle east war resulted damaging oil facilities at UAE and the escalating tension of the man-made Ukraine crisis. The unrealistic expectation that the COVID Pandemic may be over soon so the demand for energy will increase.

A major factor that will calm down the crude oil market is the side-lined US shale industry is ready to resume productions at the $80 bbl level. So, it will as total oil rigs in the USA is increasing daily. But the US fossil energy industry has been undercut by Biden Administrations environment policy. Now Biden Administration faces major challenge on inflation, and it has released limited amount of SPR without any impact on high gasoline prices in the USA, it is a tough balancing act between green energy and economy.

The US has recently ruled out any ban on exporting crude oil so US crude oil will be an active global market player.

  1. LNG is in popular demand.

A. Seasonal Demand. Please see the following news report.

Winter Chill and Geopolitical Uncertainties Makes This a World Fit for LNG

By  Avi Salzman FJan. 21, 2022 7:24 pm ET

Last winter, natural-gas shortages sent short-term prices rising in Europe and Asia, lifting stocks of gas producers like EQT and Range Resources. This year, energy consultant Wood Mackenzie is predicting that high overseas demand will continue, as gas buyers rush to lock in longer-term contracts at higher prices.

That has been a boon for Cheniere Energy, the largest U.S. producer of liquefied natural gas, or LNG. Cheniere has closed long-term supply deals with major Chinese companies in the past few months that should boost its revenue for years—benefits reflected in its stock price, which is up 25% in the past six months.

Some long-term natural-gas contracts are priced at a percentage of oil prices—lately, they’ve been at some 12% of oil prices, versus prior levels around 10%. Asia has been particularly active, signing 85% of contracts in 2021, with China accounting for the largest share. “We expect LNG contracting activity to remain strong in 2022,” says Wood Mackenzie vice president Valery Chow, with Chinese buyers accounting for most of the business.

B. China Exports LNG, that is BIG news. But it shows the increased liquidity of global LNG market

China Looks to Resell LNG as World Grapples With Gas Shortage

By Stephen Stapczynski Wed, January 19, 2022, 8:38 PM

(Bloomberg) — China, the world’s biggest buyer of liquefied natural gas, kicked off an unprecedented effort to resell its supply, alleviating global fuel shortage fears that have sparked record prices this winter.

Two of China’s biggest state-owned LNG importers released tenders this week offering to sell dozens of cargoes for delivery through November. With the end of the peak winter demand season within sight, Chinese traders are betting that the nation will avoid a crippling supply crunch and can offload excess cargoes.

The move has surprised traders and triggered a sell-off in spot natural gas from Asia to Europe. More LNG could be sent to energy-starved Europe, helping to ease pressure from its abnormally low inventories and curtailed supplies from top exporter Russia.

Cnooc is offering to sell one cargo per month between May and November, while China Petroleum and Chemical Corp., known as Sinopec, is seeking to sell as many as 45 cargoes for delivery through October, according to traders with knowledge of the matter. The tenders represent roughly 4% of China’s total LNG imports last year in one of the biggest offerings from the nation.

Company officials didn’t immediately respond to emailed requests for comment.

China spent much of last year buying spot LNG supplies and restocking inventories in preparation for this winter. But milder weather has left its energy giants with a glut of scheduled shipments. Reselling the cargoes into the pricey spot market could provide a profitable windfall for traders.

Traders also fear that the sales offers belie concerns from the Chinese firms that domestic fuel demand could be hit this year as the government tries to prevent the spread of more transmissible forms of Covid-19.

Omicron recently breached China’s tough Covid defenses, prompting Goldman Sachs Group Inc. to reduce its 2022 growth forecast for the nation. The strain recently spread to China’s major port city of Dalian following the lockdown of Anyang, a city of 5 million people. The nation is also battling an outbreak of the delta variant in Xi’an.

LNG traders are having flashbacks to the pandemic’s start in early 2020, when China declared force majeures to overseas gas suppliers because the virus destroyed demand, sending spot prices to a record low.

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