RED SEA LATEST: This morning saw more updates from the Red Sea, where Yemen-based Houthi rebels have threatened shippers, including oil and gas tankers, but oil prices have so far stayed stable.
What’s new: Maritime security firm Ambrey said today that a Malta-flagged, Greek-owned vessel was hit by a missile while traveling to Israel on the Red Sea. The attack is believed to be the third such incident involving a bulk carrier in the last 24 hours, after a U.S.-owned vessel was struck while traveling off the Gulf of Aden. A British ship also came under attack late last night.
Meanwhile, the U.S. confirmed that it struck additional Houthi positions overnight. Central Command recommended U.S.-flagged or owned ships suspend activity in the area “sine die,” or until further notice.
The attacks have raised the specter of a broader, more protracted conflict in the Red Sea that could affect both shipments via the Suez Canal—which oversaw some 12% of total seaborne oil shipments and 8% of LNG shipments in the first half of 2023—and beyond.
Shell announced today it would halt activity via the Suez Canal. The decision was reported by the Wall Street Journal and is tied to the deteriorating security situation.
Shell’s decision follows energy majors Equinor, BP, and QatarEnergy, which have all announced similar plans to pause or reroute shipments from the Red Sea in recent weeks, citing fears of disruption.
Companies rerouting away from the Suez must travel around Africa’s Cape of Good Hope, however— a trip that takes roughly 10-20 more days and runs approximately three times the cost of using the Suez.
What’s changed: A spokesman for Yemen’s Houthi group said yesterday that it now views American and British ships in the Red Sea as legitimate targets after the two countries launched airstrikes on targets in Yemen last week as retaliation for weeks of strikes it carried out on shipping vessels attempting to pass through the Bab el Mandeb Strait to the Suez.
Impact on oil: News of the disruption pushed up oil prices slightly in early hours of trading, with international benchmark Brent crude seeing gains of roughly 81 cents, or up to $78.96 per barrel, and U.S.-based West Texas Intermediate prices rising to $73.09 per barrel.
What’s next: For now, though, the impact on oil markets appears limited. In the absence of “actual and palpable impact on oil output, prices will remain well-within the current $72-$82 range,” analysts at PVM Oil Associates said today in a market note.
That could change quickly, however, if tensions escalate beyond the Suez and into the Strait of Hormuz—the world’s most important oil chokepoint that moves more than 20 million barrels of oil per day (or 20% of global consumption) from the Persian Gulf.
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CHILE RAISES PRICE PROJECTIONS FOR COPPER: Chile is raising its price projections for copper, reasoning that easing credit conditions in the U.S. and the demand for critical minerals to move away from fossil fuels could drive up demand for the metal.
Bloomberg reported that state-owned agency Cochilco said it expects prices to increase by 2.7%, up to $3.85 a pound this year – rising from $3.75. Prices could average around $3.90 next year, the agency predicts. The metal is currently trading at about $3.78 per pound.
Copper production is expected to increase 5.8% this year globally, outpacing demand growth of 3.2% and resulting in a surplus of material, according to Bloomberg.
The significance: Projections for the metal are improving as the U.S. looks to stabilize interest rates, while demand is also rising thanks to growing electric-vehicle sales.
ERCOT ISSUES SECOND CONSERVATION APPEAL THIS WINTER: A conservation appeal went into effect this morning for Texans, with the Electric Reliability Council of Texas asking residents and businesses to reduce electricity use – a warning sign to those worried about the state’s grid, the failures of which left 4.5 million residents without power during the 2021 Winter Storm Uri and resulted in 246 deaths.
The latest appeal was issued at around 6 a.m. CT, with the agency asking Texans to reduce electricity use between the hours of 6-9 a.m., citing freezing temperatures and high demand. Yesterday, ERCOT stated that it would issue the appeal, clarifying that the conservation appeal does not indicate that the state is experiencing “emergency conditions at this time.” Another conservation appeal was issued for Monday morning.
As we reported yesterday, the agency predicted a roughly one-in-six chance of rolling blackouts this year if conditions mirrored 2022’s Winter Storm Elliot’s. In fact, officials predicted that conditions are expected to be worse. Despite new additions to the grid and repeated assurances from officials that they’ve taken steps to shore up its capacity, Texas has continued to struggle to keep its grid adequately supplied during extreme heat or cold, and shattered demand records 10 separate times in 2023 alone.
Another impact of the Arctic blast: North Dakota oil production has fallen by more than 600,000 barrels per day due to the freezing temperatures, Reuters reports. This resulted in the state producing 650,000 barrels per day. Natural gas output is also expected to be down by 1.6 billion cubic feet per day, to 1.8 billion cubic feet due to the freezing weather – about half of the state natural gas production.
SHELL TO EXIT NIGERIA: Shell is taking its onshore oil and gas operations out of Nigeria, after doing business within the country for nearly a century. The company agreed to sell its subsidiary to a consortium of five companies for up to $2.4 billion, Reuters reports.
According to Reuters, the oil and gas major will sell The Shell Petroleum Development Company of Nigeria Limited for a consideration of $1.3 billion, while the buyers will make an additional payment of up $1.1 billion relating to “prior receivables at completion.”
Since 2021, Shell has been looking to sell its Nigerian oil and gas business, as it’s struggled with high-profile oil spills that resulted from theft, sabotage, and operational issues. The company’s presence has been considered controversial in the Niger Delta, as residents have argued that the company has damaged the local environment. Other western energy companies, such as Exxon Mobil, Italy’s Eni and Norway’s Equinor, have also made deals to sell their Nigerian assets in recent years.
The company will still remain in the country’s offshore sector.
“This agreement marks an important milestone for Shell in Nigeria, aligning with our previously announced intent to exit onshore oil production in the Niger Delta, simplifying our portfolio and focusing future disciplined investment in Nigeria on our Deepwater and Integrated Gas positions,” Zoë Yujnovich, Shell’s head of upstream, told Reuters.
Renaissance Africa Energy, which is a consortium consisting of ND Western Limited, Aradel Holdings PLC., FIRST Exploration and Petroleum Development Company Limited, and the Waltersmith Group – all of which are local companies – will buy up the subsidiary. Petrolin, which is also a part of the group, is a Swiss-based trading and investment company.
The sale still requires the approval of the Nigerian government. Read more on that here.
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