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By Gavin Maguire, Global Energy Transition Columnist

Hello Power Up readers,

Brent and U.S. light crude oil prices scaled their highest levels since last November this week after Saudi Arabia and Russia extended voluntary crude oil production cuts through the end of the year to “maintain the stability and balance of oil markets,” Deputy Prime Minister Alexander Novak said in a statement on Tuesday.

The cuts are on top of the cuts already agreed by OPEC+ countries in April, which also extend until the end of 2023.

Despite the supportive measures by Saudi Arabia and Russia on the supply side, weak demand in key crude import market China set the tone of crude oil trading on Thursday, with Brent crude prices down around 0.5% to $90.18 per barrel just prior to this publication. (A deep dive that highlights rare weakness in China’s mammoth and critical car sector is below).

In natural gas markets, liquefied natural gas (LNG) traders remain on tenterhooks as talks continue between labour unions and management at Chevron’s two major LNG projects in Australia.

Today’s top headlines:

• Shell ditched major works on giant LNG facility in favour of quick fix -sources
• Buoyant LNG industry bets it’s in the energy mix for decades
• German industrial output falls more than expected in July
• China’s oil imports surge in August as fuel exports, inventories rise

Deputy Prime Minister of Russia Alexander Novak arrives for an OPEC meeting in Vienna, Austria, June 4, 2023. REUTERS/Leonhard Foeger.

Saudi Arabia and Russia on Tuesday said they would extend voluntary oil cuts to the end of the year, despite a rally in the oil market and analyst expectations of tight supply in the fourth quarter.

Oil prices rose sharply following the news, with Brent rising above $90 a barrel for the first time since November, despite steady increases in Iranian and Venezuelan oil exports as the market believes the U.S. is not enforcing sanctions as stringently as in previous years.

“The Saudis previewed such an outcome last month with their longer, deeper statement but today’s move still managed to catch many market participants by surprise. Once again proves that Prince Abdulaziz remains firmly in whatever-it-takes mode,” said RBC Capital Markets analyst Helima Croft, referring to Saudi Energy Minister Prince Abdulaziz bin Salman.

The Saudi cuts of 1 million barrels per day (bpd), and Russia’s cuts of 300,000 bpd, are a fresh blow to U.S. President Joe Biden, with tighter supply lifting prices just as he faces re-election in 14 months.

A LNG (Liquefied Natural Gas) tanker is anchored off a port in Yokohama, south of Tokyo December 5, 2012. REUTERS/Yuriko Nakao.

Strike action at Chevron’s two major liquefied natural gas (LNG) projects in Australia was paused for 24 hours because of progress made in mediation talks, a union alliance said on Thursday, raising prospects the parties may be nearing a deal.

Workers at Gorgon, Australia’s second-largest LNG plant and its Wheatstone operations will delay strike action until 6 a.m. on Friday (2200 GMT on Thursday), a union spokesperson said. Two union representatives, who declined to be identified, told Reuters late on Wednesday about the decision.

Australia is the world’s biggest LNG exporter and the ongoing dispute over wages and conditions had stoked volatility in gas prices. Gorgon and Wheatstone operations account for more than 5% of global LNG capacity.

Bernard Looney, BP Chief Executive, speaks during a session at Egypt’s 5th Petroleum Show “EGYPS 2022” in the capital city of Cairo, Egypt, February 14, 2022. REUTERS/Amr Abdallah Dalsh.

BP CEO Bernard Looney says he will not further scale back his energy transition strategy after ceding some ground earlier this year, despite investors penalizing the oil major over its plan to break away from rivals in cutting oil and gas output.

Taking office in February 2020 with a vow to reinvent the 114-year-old company, Looney laid out ambitious plans for the British energy giant to achieve zero net emissions by 2050, and to invest billions in renewable and low-carbon power.

Since then he has navigated the group through some of the most tumultuous years in modern history, from COVID-19 to a rapid exit from Russia following the invasion of Ukraine last year, an energy price shock, and a global cost of living crisis.

Earlier this year BP scaled down plans to cut hydrocarbon production by 2030, to 25% from 2019 levels from 40% previously.

However, it remains the only major oil company aiming to reduce output by the end of the decade. Rival Shell plans to maintain oil production and grow its gas output by 2030, while TotalEnergies also aims to grow output.

Investors have responded coolly to the transition plan. BP’s shares have risen around 4% since Looney took office, against gains of around 20% and 29% for European counterparts Shell and TotalEnergies, and increases of 50% and 80% for U.S. rivals Chevron and Exxon Mobil, respectively.

But Looney said he won’t be slowing its shift away from hydrocarbons any further.

“We’re holding our nerve on the transition,” the 53-year-old Irishman said in an interview with Reuters in his office at BP’s headquarters in central London.

“I believe that’s what the world needs. And I believe it’s our job to prove that is in the long-term interests of our shareholders.”

Employees work on assembly line during a construction completion event of SAIC Volkswagen MEB electric vehicle plant in Shanghai, China November 8, 2019. REUTERS/Aly Song.

Workers in the world’s largest car producer are feeling the pain from the widening global price war.

Reuters interviews with 10 executives of carmakers and auto parts suppliers, as well as seven factory workers, point to a broader industry in distress, with penny-pinching on everything from components to electricity bills to wages, which is in turn hitting spending elsewhere in the economy.

The price war triggered by Tesla has sucked in more than 40 brands, shifted demand away from older models and forced some automakers to curb production of both EVs and combustion-engine cars, or shut factories altogether.

Economists warn that China’s auto sector could even become a drag on economic growth because of the fallout from the price war, which would be a stark turnaround for a car industry that is by far the world’s biggest.

The problem is that while there has been huge investment in production capacity, helped by large state subsidies, domestic demand for cars has stagnated and household incomes remain under pressure, economists say.

In the first seven months of 2023, China sold 11.4 million cars at home and exported 2 million, but growth came almost entirely from abroad. Exports leapt 81% but domestic sales only crept 1.7% higher – despite the widespread price cuts.

Including factories making combustion-engine cars, China had the capacity to produce 43 million vehicles a year at the end of 2022, but the plant utilisation rate was 54.5%, down from 66.6% in 2017, China Passenger Car Association (CPCA) data show.

At the same time, pay cuts and lay-offs in the auto industry and its suppliers – which employ an estimated 30 million people according to Chinese state media – are hitting living standards at a time when Beijing desperately wants to lift consumer confidence from near record lows.

“These bullish moves significantly tighten the global oil market and can only result in one thing: higher oil prices worldwide.”

Jorge Leon at Rystad Energy, on the Saudi-Russia oil output cuts

President Joe Biden’s administration has asked U.S. energy companies to prepare affidavits documenting how Mexico’s protectionist policies disrupted their investments as Washington prepares to escalate a trade dispute with its neighbor, according to reporting by Jarrett Renshaw and David Lawder.

The request for affidavits from major U.S. oil and renewable energy companies represents the latest and clearest signal that the Office of the United States Trade Representative (USTR) plans to seek an independent dispute settlement panel under the United States Mexico Canada Agreement trade pact, or USMCA.

Mexican President Andres Manuel Lopez Obrador’s steps to roll back reforms aimed at opening Mexico’s power and oil markets to foreign competitors ultimately sparked the trade dispute.

U.S. energy and power companies, such as Chevron and Marathon Petroleum, which sought to expand in Mexico, have complained that they have been denied simple permits and applications in decisions that favored state oil company Petroleos Mexicanos (Pemex) and national power utility Comision Federal de Electricidad (CFE).

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