Oil Daily | U.S. Sanctions on Russia and China's Demand Shift Reshape Global Oil Supply Dynamics

【Global Oil Supply and Demand】

U.S. sanctions on Russia are affecting global oil supply, potentially reducing Russian oil by 700,000 to 800,000 barrels daily. Despite this, some analysts expect the impact to be muted due to China's reduced demand and alternative supply routes for Russia.

China's coal imports reached a record high in 2024, driven by lower international coal prices. Increased demand from the power and chemicals sectors is expected to continue, contributing to higher coal consumption despite the growing share of renewables in China's energy mix.

【Oil-Producing Countries Dynamics】

Six EU countries urged the Commission to lower the G7's price cap on Russian oil to further reduce Russia's income. The cap set at $60 aims to limit Russia's revenue without causing a market shock. Russia has navigated sanctions by using its fleet and non-Western insurers.

India's refiners have stopped dealing with Russian tankers sanctioned by the U.S. but expect no immediate disruptions to Russian oil flows until March, as existing contracts are fulfilled. India and China are diversifying oil sources due to tightening U.S. sanctions.

Ukraine's attempted drone attack on a Russian gas compressor station part of the TurkStream pipeline was thwarted by Russia. The incident highlights ongoing tensions, with TurkStream remaining a crucial route for Russian gas to Europe after the expiry of the Ukraine transit deal.

【Latest Oil Policies】

The Biden administration's harsh sanctions on Russian oil, targeting major companies and vessels, have affected global oil dynamics. India has aligned with the sanctions, impacting its import strategy, while the EU is encouraged to further reduce Russian oil revenues.

Germany is exploring options to reduce its stake in Uniper, which it nationalized during the energy crisis. Potential strategies include a public offering or selling to investors, aiming to comply with EU state aid regulations by reducing its stake by 2028.

【Industry News】

U.S. refiners face challenges from declining margins and uncertain trade policies under the incoming administration. Refining profits are pressured by global supply increases and tepid demand, particularly as new capacity emerges from the Middle East and Africa.

Germany's AfD party opposes wind energy expansion, advocating for a rollback of wind subsidies. Despite their stance, wind and solar power have grown significantly, with solar surpassing wind in generation for extended periods due to cost and construction advantages.

【Company News】

Diamondback Energy aims to capitalize on rising natural gas demand from AI developments, seeking innovative ways to increase shareholder value. The company's natural gas prices rose significantly, contrasting with a decline in oil prices.

Venture Global LNG is targeting a $110.38 billion valuation in a 2025 U.S. IPO. Their Plaquemines LNG plant, now operational, positions the U.S. as a top LNG exporter, with plans to invest $50 billion in energy projects.

【Others】

Arlington-based LNG company Venture Global aims to become one of the largest energy IPOs with a $110.38 billion valuation target for 2025. With the commencement of LNG production at Plaquemines, the company is set to enhance U.S. LNG exports, investing significantly in energy projects.

Despite declining margins, U.S. refiners face challenges from potential tariffs and economic uncertainty. The EIA anticipates a drop in U.S. refining capacity, yet margins may stabilize with strategic capacity reductions, like Phillips 66's planned Los Angeles refinery closure.