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China's oil refiners are protected from the conflict between Iran and Russia by having a large supply of Iranian and Russian oil.
Oil refiners will be able to weather the near-term disruption of the Iran conflict thanks to record shipments from Iran and Russia and aggressive government stockpiling. China is the world's largest oil importer. Its independent refiners - known as teapots - are the primary market for Iranian crude oil, which trades at a steep discount due to U.S. Sanctions that have scared away most buyers. Chinese traders were largely on the sidelines on Monday, trying to digest the effects of the U.S. and Israel attack on Iran. They also wanted to understand the Iranian retaliation strikes in the Gulf, as well as the expansion of the conflict into Lebanon. Oil prices rose 9% on Sunday A senior trader at a large independent refiner said, "The market is volatile and could change every day." The second trader at a Shandong-based oil processing plant said that he couldn't "bid" because he didn't know how the situation would evolve. NARROWER DISCOUNTS FOR IRANIAN "CRUDE" The trader added that there was no need to worry about the supply of oil for the months of March and April, as the Russian barrels were plentiful, as were the record volumes Iranian oil. Since the third quarter of last year, his plant has also diversified into increasing supplies from Russia, and Brazil, because Iranian oil -?once the highest grade - has?lost a little of its price edge. Despite the lack of clear indications on pricing, some traders believe that discounts for Iranian crude will narrow due to expectations of tighter supplies. One trader cited a price of ICE Brent minus 9 dollars a barrel delivered, down from minus 11 dollars last week. Market speculation also suggests that Washington could remove Iranian supplies from its sanctions list in the future if Washington takes control of Iranian oil imports as a result of the military campaign. According to Kpler, China's total seaborne oil imports for the year so far is 11.5% from Iran, and 10.5% from Russia. Kpler estimated that the Iranian oil shipped in February was 2.15 million barrels a day, which is?the highest since July 2018'. Vortexa put it at 2,000,000 bpd. Iranian exporters allegedly rushed to ship oil ahead of a potential conflict. China's Russian imports will rise for the third consecutive month, reaching a record level in February as India reduced purchases. Early deals for April arriving shipments of Russian ESPO blended oil remained at a deep discount, with ICE Brent minus 8-$9 per barrel. Emma Li, Vortexa China Analyst, stated that the abundance of Russian and Iranian shipments means teapots will not be turning to the mainstream in the near future. According to Vortexa, and traders, China's stockpiles have amounted to 900 million barrels of oil under state control, which is 78 days worth of imports. If the Iranian oil discount is no longer available, independent Chinese refiners will likely return to their previous buying habits. Traders said that they preferred cargoes of Russian oil, but also those from Brazil, Canada, and Chinese offshore production.
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Court rules that ex-Yukos investors in the UK can enforce arbitration awards against Russia worth $65 billion
The London High Court ruled that former Yukos investors can enforce arbitration awards against Russia now worth more than $65 billion for the?seizure?of the defunct oil company. Three former Yukos shareholder companies - Hulley Enterprises (formerly Yukos Universal), Veteran Petroleum and Yukos Universal - have been battling to enforce the 2014 award for over a decade, with limited success. They've recovered?only 1.6 million euro ($1.89million) so far. The arbitration tribunal at The Hague awarded the companies just over $50 billion in 2014. The arbitral tribunal found that Russia had carried out "a devious and calculated expropriation of Yukos" after its former owner Mikhail Khodorkovsky's imprisonment. Since then, they have tried to enforce the award in Britain, America and the Netherlands, where the Dutch Supreme Court rejected Russia's appeal last year to reverse the award. In the London leg, Russia has argued that it didn't agree to submit itself to the?jurisdiction?of the arbitration. This argument was rejected both in November 2023, and again on appeal in February last year. After a hearing in January, the High Court decided that the arbitral award would be recognized?and the investors could?seek enforcement?in England. The Russian Embassy in London didn't immediately respond to our request for comment. (Reporting and editing by Sarah Young; Sam Tobin)
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Middle East strikes shut down major Saudi refinery and Israeli, Kurdish, and Kurdish oil and gas fields
Saudi Arabia closed its largest domestic oil refinery after a 'drone strike' on Monday, according to a source. Across the Middle East, oil and gas facilities were forced to shut down due to?Israeli, U.S. and Iranian retaliation? The wave of attacks in the region lasted a third consecutive day. This led to the suspension of the majority of oil production in Iraqi Kurdistan, as well as at several of the largest Israeli gas fields. Exports to Egypt were also halted. The Saudi Aramco Ras Tanura refinery that produces 550,000 barrels of crude oil per day, was closed as a precaution. It is part of an energy complex along the Gulf coast, which also functions as a vital export terminal for Saudi oil. Companies such as DNO, Gulf?Petroleum, Dana Gas, and HKN Energy, who exported 200,000 barrels per day via pipeline to Turkey’s Ceyhan Port in February, have stopped production at their fields out of precaution. No damage has been reported. Sources claim that the Leviathan gas field, operated by Chevron, was shut down on Saturday. Energean also closed its production vessel servicing smaller gas fields. DRONES INTERCEPTED?SAAUDI ARABIA Source: The situation is under control at Aramco’s?Ras Tanura refining facility. The Saudi Defence Ministry spokesperson told Al Arabiya TV that two drones were intercepted, and debris caused a small fire. There were no injuries. Aramco didn't immediately respond to a request for comment sent via email. The Saudi?state?news agency SPA reported that the oil and derivatives supply to the local market was not affected by the closure of some refinery units as a precautionary step. Still, the closure of the Strait of Hormuz will add to supply concerns as shipping in this area, which accounts for?a quarter of global oil consumption, has come to a standstill after Sunday's attack on vessels. Brent crude futures rose by 10% to $82 per barrel on Monday. ATTACK SEEN A SIGNIFICANT ESCALATION The attack on Saudi Arabia’s Ras Tanura refinery is a significant escalation. Gulf?energy infrastructure is now in Iran's sights, said Torbjorn Sotvedt. Principal Middle East analyst for risk?intelligence company Verisk Maplecroft. The attack will also bring Saudi Arabia and the neighbouring Gulf States closer to joining U.S. military operations and Israeli military actions against Iran. Saudi Arabia's heavily-fortified energy infrastructure has?been previously targeted, most notably last September when?drones and missile attacks against the Abqaiq & Khurais plants temporarily shut down more than half the kingdom's crude oil production. Ras Tanura, a Yemeni city with Houthis who are Iran-aligned, was attacked in 2021.
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Five Russians injured in overnight drone attack on Novorossiysk
Local authorities reported on Monday that five people were injured and 20 buildings destroyed in a massive drone attack by the Ukrainians on Novorossiysk (a southern Russian city with a naval base and port). The Russian Defence Ministry announced that it had 'downed 172 Ukrainian Drones overnight. This included 67 drones?overthe Black Sea, and 66 in the Krasnodar region where Novorossiysk lies. "Our military has repelled an?abundant attack from Ukrainian drones all night." Veniamin Kongratyev said that the'strongest strike' hit Novorossiysk where a state-of-emergency was declared. Andrei Kravchenko posted pictures of some of damage on his Telegram channel. According to preliminary information, eight residential tower blocks, nine private houses, and three kindergartens were all damaged. He said that five people were being treated at the hospital for injuries sustained in the attack. Interfax reported that drone?debris fell on a grain?terminal in Novorossiysk but caused no?damage. The head of the company operating the facility was quoted as saying this. Andrew Osborn (Reporting)
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Iron ore prices rise as a result of the Iran War; iron ore shipments drop
Iron ore prices recovered from earlier losses and traded higher on Monday as investors focused their attention on potentially?higher shipping rates after the Iran conflict, along with falling shipments?from major suppliers. The most traded iron ore contract on China's Dalian Commodity Exchange closed the daytime trading 0.87% higher, at 754.5 Yuan ($109.64). As of 0731 GMT, the benchmark April iron ore traded on Singapore Exchange was up 0.85% at $99.2 per ton. In a recent note, Zhengxin Futures analysts stated that the rising oil prices due to the U.S. - Iran conflict?increased freight costs and therefore supported iron ore prices. Analysts and data from Mysteel say that a drop in shipments by top suppliers Australia, and Brazil, who were both down 0.8% on a week-on-week basis, also helped to boost prices. Ore prices dropped earlier in the session due to 'production curbs' in China’s key?steel?hub Tangshan after a forecast for worsening air pollution activated level-two emergency responses from Sunday. These measures, which require mills in the area to reduce production and lower demand for raw materials to cool down, are a follow-up to earlier calls to northern Chinese mills for them to reduce output during the annual parliament meeting beginning March 5. Guiqiu Zihuo, a broker at Jinrui Futures, cited the slow recovery in steel demand as well as the mounting steel stock and elevated portside inventories that weighed down on ore prices. Iron ore stocks in major Chinese ports Steelhome data showed that the number of tons reached a new record on February 27. Coking coal, and other steelmaking components, also recovered from earlier losses, closing daytime trades up by 1.06% and 1.38 %, respectively. The benchmark steel prices on the Shanghai Futures Exchange have gained a lot of ground. Rebar gained 0.26%; hot-rolled coils advanced 0.34%; wire rod increased 0.24%; and stainless steel rose 1.91%.
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Saudi Aramco closes Ras Tanura refinery following drone strike: source
Aramco, the state oil company of Saudi Arabia, shut down its 'Ras Tanura' refinery after a 'drone strike. An industry source confirmed this on Monday. This was in response to Tehran launching strikes throughout the region as a reaction to the U.S. and Israeli attack on Iran. Ras Tanura, located on the Gulf coast of Saudi Arabia, is one of the largest refineries in the Middle East, with a daily capacity of 550,000 barrels. It also serves as a vital export terminal for Saudi crude. The source stated that the situation was under control and it was closed as a precautionary measure. Aramco did not respond immediately to a request for comment sent via email. The drone attack was part of a wave that targeted the Gulf region, including Abu Dhabi, Dubai Doha, Manama, and Oman's Duqm commercial area. The drone strikes have caused major shipping hubs to be paralyzed in the United Arab Emirates and Oman, and Brent crude futures rose by about 10% on Monday. Saudi Arabia's heavily-fortified energy infrastructure has been targeted before, most notably in September 2019, when unprecedented drone and rocket attacks on the Abqaiq & Khurais plants temporarily knocked out?more than half of the Kingdom's crude production and roiled the global markets.
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T&E report: EU can reduce battery prices by up to 50% with Made in Europe plan
T&E, a campaign group for transport and the environment, said in a report on Monday that scaling up production in Europe would reduce the 'cost gap' between EU-made and Chinese batteries to 30%, down from the current 90%. The group urged the EU, through its "Made in Europe", plans, to support this sector. The EU executive will propose its "Industrial Accelerator Act", which requires that local products be given priority when using public funds. It is intended to cover "key sectors" such as batteries, solar, wind, hydrogen manufacturing, nuclear power, and electric vehicles. Some automakers claim that local content requirements will make batteries "exorbitantly expensive" and reduce the competitiveness of their models. T&E reported that increased manufacturing efficiency, particularly through lower scrap rates?aswell as labour know-how?and automation?could reduce the cost gap to $14 per kilowatt hour?in 2030. This would be equivalent to a gap of 500 euros for an electric vehicle, which could even be less with public incentives. Or it could be treated as a premium of insurance against the kind of export restrictions China already placed on "critical minerals" and "rare earths". "Europe must have a domestic industry to protect its supply chain from being weaponised. Local content requirements are the best way to avoid another Northvolt. The cost of Made in EU rules is worth it, said Julia Poliscanova. T&E senior director for vehicles and e-mobility. Cost gap could only?narrow if EU requirements for local content allowed companies like ACC, Powerco and Verkor to increase production. T&E stated that the 'Made in Europe Plan' should explicitly state that public support schemes include EV tax incentives for EV owners, as well as employers and employees in corporate vehicle schemes.
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Morning bid for Europe-Dire Straits for global oil trade
Wayne Cole gives us a look at what the future holds for European and global markets. Everyone is now an expert in crude?shipping across the Strait of Hormuz. Marine Traffic shows the 'tankers' piled up on either side of this vital waterway, which carries about a fifth of all the world’s?oil and liquefied gas trades. It also carries a third of its?fertiliser. The main buyers of Iranian crude oil are Asia and China. It's not closed, but shippers will be reluctant to take a risk, especially if they cannot afford additional war insurance. Charter rates on very large tankers were already skyrocketing before the attacks, and now they will be even higher. If the shooting stops, it could be a while before the blockage is cleared. The Daily Mail reported that President Trump said the attacks could continue for up to four weeks or until "very strong goals" are achieved by the United States. It is difficult to know what these objectives are. The U.S. strike -?reportedly 1,000 or even more - appears to have taken place all over Iran, on many sites including air defence and intelligence as well as warehouses and barracks. It is not known if there are enough advanced missiles and ammunition to last for a full month. Israel launched another wave of air attacks on Tehran Sunday, and Iran responded with more missiles barrages a day following the death of Supreme Leader Ali Khamenei. OPEC+ decided to increase crude oil production by 206,000 barrels a day in April. However, this is only 0.2% of the global oil demand. Brent rose almost 6%, to $77.00. It briefly reached $82.00. The gains this year have been more than 26%. Some analysts even suggest $100 as an ideal round-off target. Such a rise, if persistent, could reignite inflation and act as a global tax on businesses and consumers. The 10-year Treasury?yields fell initially to a 11-month low of 3.926% before reversing to 3.970%. Fed fund futures have fallen 4 ticks to December, which indicates a slightly lower chance of rate cuts. A June move is 50-50. FX reaction was muted. The dollar rose a little against the euro and yen but fell a bit against the Swiss franc. The Norwegian krone is expected to benefit from the oil price jump, but it is not heavily traded in Asia. Airlines and banks are among the worst performers on the Asian share markets. European and U.S. stocks futures are lower, but off their early lows. Now, the focus is on tanker watch. Markets could be affected by a number of key developments on Monday. Alan Taylor of the Bank of England's MPC, and Ryozo Himino, Bank of Japan's Deputy governor, were all present. * EU and Global PMIs. US ISM Manufacturing Survey, German Retail Sales, UK House Prices
New Middle East twist raises risk for world markets
Investors are increasingly concerned about the possibility of a prolonged regional war and a power struggle between Iran and Saudi Arabia. This could have a negative impact on everything from global trade, to inflation.
As financial markets came to terms with the U.S.-Israeli strikes against Iran over the weekend that killed Supreme Leader Ayatollah Ali Khamenei, oil prices rose on Monday.
Analysts said that for now, investors are pricing in a conflict that is relatively contained. However, there is still plenty of room for volatility if the conflict escalates. Iran has responded by striking back at Gulf cities. Airlines have halted flights, and tankers transporting oil and other products have suspended transit through the Strait of Hormuz. First, the markets are concerned about the uncertain future of Iran's government system. This complicates the outlook of oil prices, which have been rising for weeks. They are now dependent on what the oil-producing nations do and the effects of the Middle East tanker transit.
Brent crude rose nearly 10% to $79 on Sunday, a gain that has reached nearly 30% this year. However, it remains well below the $100 level analysts predict in an extended conflict.
Joerg Kraemer, chief economist at Commerzbank, said: "This is an incredibly moderate reaction, considering the Strait of Hormuz is effectively closed, and around 20% of world oil consumption is passed through it."
Kraemer also believes that this scenario is most likely.
Analysts said that the greater risk is complacency on the part of markets who assumed there would be limited fallout, as they did during last year's "12 Day War" in Iran, or Russia's multiple attacks against Ukraine.
Barclays analysts wrote in a note on Saturday that "history strongly argues in favor of selling the geopolitical premium when hostilities begin." What worries us is the fact that investors may have learned this pattern and are underpricing scenarios where containment fails.
Other factors could also exacerbate the selloff if the conflict escalates, including existing concerns about the artificial intelligence boom or private credit markets.
Mohit Kumar of Jefferies, an economist who was already critical last week about the markets' complacency on geopolitical issues, said: "We expect further market decline in the days to come."
The dip is still a long way off.
SAFETY VERSUS INSULATION
The dollar rose on Monday in a typical flight to security. Gold was up over 2% while European stocks fell nearly 2%. Futures indicate a similar opening for U.S. stock futures. The Swiss franc - a safe haven - rose to its highest level since 2015 when compared with the euro.
Although the yen is another safe haven currency, it has weakened in relation to the dollar.
Investors reduced their bets on rate cuts across major central banks, which led to a rise in government bond yields. This is due to a greater focus on the inflationary effects of the oil prices.
William Jackson, Capital Economics' chief emerging-markets economist, believes that a conflict that affects supply could push oil prices up to $100. This would add 0.6 to 0.7 percentage points of global inflation.
"In my opinion, the market is already?overestimating inflationary force, so I do not think that this will change much. The impact will be greater on Europe due to the proximity of Hormuz gas and oil post-Russia, said Tariq Denson, a wealth advisor at Zurich's GFM Asset Management. The euro last fell?over 0.8% to $1.17 against the dollar, with the surge in oil prices a reminder of the crisis that the energy-importing block faced at the beginning of Russia's invasion in Ukraine in 2022.
"Investors are overweighting the euro and European assets in the recovery story of this year - a narrative that will be naturally challenged by higher energy costs this week," ING stated.
Analysts predict that Iran won't be able disrupt the trade in the Gulf region, and the impact of oil prices on the market will be limited.
Ed Yardeni of Yardeni Research in New York said, "We wouldn't be surprised if a sell-off on the S&P 500 Monday morning turned into a rally driven by the expectation of lower oil prices after the latest Middle East conflict ends."
Gold could also double on Monday. He said that bond yields could fall because of both the safe-haven market and future oil price prospects.
(source: Reuters)