Energy investors are looking at utility stocks

Saudi government milking of Saudi Aramco leads to underperformance

– Saudi Aramco reported a 3.4% year-on-year drop in its Q2 net income to 29.07 billion due to lower oil sales volumes and weaker refining margins.

– Saudi Arabia’s national oil company bore the brunt of OPEC+’s voluntary production cuts, which have seen it underperform all Western oil companies, down more than 17% since the start of 2024.

– Saudi Arabia’s oil rent hovers between 20% and 25% of the country’s GDP, with Riyadh (the kingdom owns 97% of the company directly and through its investment fund) raising Aramco’s dividends to a record 124.2 billion this year, despite the decline. income.

– There appears to be a growing divide between Saudi Aramco’s ambitious demand expectations, with CEO Amin Nasser expecting demand growth to be 1.6-2 million b/d in the second half of this year and other oil-focused organizations and consultancies.

Russian oil exporters are ditching Western shipping and insurance

– The share of tankers carrying Russian crude that were not branded, owned or operated by G7 companies rose to the highest level on record in July, reaching 83%, as a total of 2.64 million b/d of oil exports used the so-called gray fleet.

– Western authorities have blacklisted more than two dozen tanks for breaching the G7 price cap in recent weeks, but this appears to be…

Saudi government milking of Saudi Aramco leads to underperformance

– Saudi Aramco reported a 3.4% year-on-year drop in its Q2 net income to 29.07 billion due to lower oil sales volumes and weaker refining margins.

– Saudi Arabia’s national oil company bore the brunt of OPEC+’s voluntary production cuts, which have seen it underperform all Western oil companies, down more than 17% since the start of 2024.

– Saudi Arabia’s oil rent hovers between 20% and 25% of the country’s GDP, with Riyadh (the kingdom owns 97% of the company directly and through its investment fund) raising Aramco’s dividends to a record 124.2 billion this year, despite the decline. income.

– There appears to be a growing divide between Saudi Aramco’s ambitious demand expectations, with CEO Amin Nasser EXPECTING demand growth to be 1.6-2 million b/d in the second half of this year, as well as other oil-focused organizations and consultancies.

Russian oil exporters are ditching Western shipping and insurance

– The share of tankers carrying Russian crude that were not branded, owned or operated by G7 companies rose to the highest level on record in July, reaching 83%, as a total of 2.64 million b/d of oil exports used the so-called gray fleet.

– Western authorities have blacklisted more than two dozen tankers for breaching the G7 price cap in recent weeks, but this appears to have limited impact as the size of the gray fleet continues to grow.

– Both Russian oil companies and Chinese shippers consider mainland China and Hong Kong the safest places to register their shadow fleet, with vessels domiciled in these two territories accounting for 29% of Russian exports last month.

– Russian oil exports have escaped substantially in July, following improved compliance with OPEC+ production cuts and higher domestic refineries, averaging 3.2 million b/d, down about 0.5 million b/d from June.

U.S. utilities could be the next best thing for energy investors

– U.S. energy utilities could become the most sought-after investment opportunity in the markets right now, becoming the best-performing S&P 500 sector since the benchmark hit a record high on July 16.

– Utilities like NextEra Energy or Duke Energy rose an average of 4% over the past three weeks, while the broader index lost 7% immediately after the stock selloff.

– The combination of lower Treasury yields and anticipation of imminent interest rate cuts at the US Federal Reserve have ignited interest in high-dividend stocks, utilities that are enjoying the incremental energy needs of the AI ​​revolution.

– Historically, utilities have been the best performing market sector in the period that includes the three months before and after the first interest rate cut in a cycle; conformable at Goldman Sachs research.

Erratic Iraqi compliance becomes headache for OPEC+

– OPEC+ oil output posted its biggest month-on-month rise in a year, driven almost entirely by Iraq and Kazakhstan, as both countries increased production despite pledges to stick to their respective compensation plans .

– Total OPEC+ output was 41.03 million b/d in July, according to an S&P Global survey, about 437,000 b/d above the group’s aggregate target for the month, up from 229,000 b/d in June.

– Despite some promising news from Kurdistan that Erbil is cracking the decline of illegal refiners and fuel traffickers, Iraq’s production remained 400,000 b/d above its quota at 4.33 million b/d.

– The oil group’s African contingent mostly underperformed targets, with civil war-hit South Sudan, Nigeria, Sudan and Congo all producing below their targets due to force majeure events and structural decline.

Ukraine’s incursion into Russia increases pipeline flow risks

– Russia’s border town of Sudzha has become the largest closely location followed in European gas markets, as Ukraine’s military offensive in the Kursk region threatens to disrupt all Gazprom pipeline flows to continental Europe.

– While Russian gas flows through Ukraine did not stop and Gazprom still reserved 37.3 million m3/day of transit capacity, heavy fighting over the only functional European-bound metering station poses substantial risks of disruption.

– reference TTF natural gas futures for Europe rose up above €40 per MWh ($14 per mmBtu) on Thursday for the first time since December 2023, notably above Asian Japan/Korea LNG benchmarks.

– The gas transit agreement between Russia and Ukraine is due to expire at the end of this year, but the European Union is trying to keep the flows intact through an Azeri-Russian gas volume swap.

Britain is trying to reinvent its carbon strategy as the government pursues more revenue

– The UK carbon program was divergent from European trends, London could lose up to 10 billion in revenue by 2028 if the country remains outside the EU carbon market.

– The study comparing the two carbon markets was commissioned by several energy companies such as Centrica or Drax, which believe that a re-coupling of the UK and EU carbon markets could also increase energy earnings for generators.

– Historically, UK carbon prices have tended to trade above Europe’s ETS, but the post-2022 collapse in UK gas production and the Sunak government’s higher supply of allowances has pushed prices higher in the United Kingdom 36% lower than in Europe.

– The recently elected Labor government has reported its willingness to realign its carbon market with that of the European Union, but with Brussels’ carbon border adjustment mechanism starting in 2026, time may be running out.

Short-term outlook for copper shed by multi-year high stocks

– Copper prices lost steam after shedding nearly 25% from their mid-May peak, as recession fears in the Atlantic basin and weak data from China dragged the metal below 9,000 per metric ton.

– Net duration of CMX copper futures and options held by money managers and other hedge funds is now down to just 9,500 contracts, the lowest since early March, mainly on a massive reduction in long positions.

– While base metals could benefit from support from China’s stimulus measures in H2, high copper stocks make this unlikely to happen with the transition metal – LME stocks at highest since September 2019, with almost 295,000 metric tons.

– Chinese overcapacity remains an issue for Dr Copper, which is believed to be the health of the global economy, as most of the incremental stocks placed in LME stocks were of Chinese origin.