– Q1 2025 results of downstream-focused majors have been in stark contrast with how bearish the market remains on the future of refining, with the past years’ demand growth jeopardized by trade wars.
– Consumption patterns in refined products have lagged flat price developments, leading to relatively higher margins today – the Singapore margin for refining Dubai crude is now around $7 per barrel, up from $4.3 per barrel a year ago.
– The contango futures structure that has developed in Brent and WTI suggests that today’s balanced supply/demand outlook will give way to oversupply, signalling lower margins for refiners after summer’s high-demand season is over.
– The US has already seen the closure of LyondellBasell’s Houston refinery, and two Californian refineries (Wilmington, Benicia) will follow suit, as the only way to counteract lower margins and weak demand growth seems to be capacity consolidation.
US Drillers Double Down on Location Economics
– The US shale industry has moved to a much more location-intensive way of conducting business, with the average number of wells drilled at the same location doubling over the past decade to more than 3 wells per location.
– By drilling multiple wells at once, operators seek to optimize their production timeline and simultaneously reduce their drilling costs per well, a trend that is bound to accelerate with WTI trading around $60 per barrel.
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Oil Refiners Fear Trade Wars Will Hit Them Soon
– Q1 2025 results of downstream-focused majors have been in stark contrast with how bearish the market remains on the future of refining, with the past years’ demand growth jeopardized by trade wars.
– Consumption patterns in refined products have lagged flat price developments, leading to relatively higher margins today – the Singapore margin for refining Dubai crude is now around $7 per barrel, up from $4.3 per barrel a year ago.
– The contango futures structure that has developed in Brent and WTI suggests that today’s balanced supply/demand outlook will give way to oversupply, signalling lower margins for refiners after summer’s high-demand season is over.
– The US has already seen the closure of LyondellBasell’s Houston refinery, and two Californian refineries (Wilmington, Benicia) will follow suit, as the only way to counteract lower margins and weak demand growth seems to be capacity consolidation.
US Drillers Double Down on Location Economics
– The US shale industry has moved to a much more location-intensive way of conducting business, with the average number of wells drilled at the same location doubling over the past decade to more than 3 wells per location.
– By drilling multiple wells at once, operators seek to optimize their production timeline and simultaneously reduce their drilling costs per well, a trend that is bound to accelerate with WTI trading around $60 per barrel.
– Increased usage of electric frac fleets instead of diesel-powered ones has also helped lower costs as state-of-the-art generators can run on field gas or grid-fed electricity, further streamlining drilling operations.
– According to the EIA’s weekly petroleum reports, crude production across the US dipped by some 200,000 b/d since President Trump announced his first reciprocal tariffs in early April, hitting 13.36 million b/d in the week ended May 02.
Offshore Wind Falls By the Wayside as Trump Halts Permitting
– The outlook for the proliferation of new offshore wind capacity has darkened with President Trump putting all new federal approvals on an indefinite pause, prompting the Global Wind Energy Council to cut its forecast for new installations for the first time since 2021.
– The wind industry now expects new capacity to be some 55 GW less by 2028 than previously expected, with high labour costs and interest rates, stubborn inflation, and trade wars continuing to plague project economics.
– Even before Donald Trump assumed the presidential office, new wind installations across the US dipped to a decade-low of 3.9 GW, a sea change compared to the 2020 record of 16.2 GW.
– If it weren’t for China, global wind power installations would see lower growth throughout 2022-2025 as the Chinese market is the only to see generation costs halve since 2020 (in the US, they’ve gone up by more than 35%).
Indonesia’s Coal Bonanza Gets Cut Short
– Indonesia’s coal exports have been underperforming this year so far, as weak demand from two key buyers – China and India – has brought the world’s largest thermal coal exporter closer to its first annual decline since 2020.
– Indonesia has so far exported 164 million tonnes of coal in 2025, some 12% lower than a year ago, with the total drop in exports dovetailing almost perfectly with China’s lower buying as Beijing prioritizes domestic production over imports.
– The weakness in global coal trade goes against continuous drops in coal prices – Indonesian coal of mid-calorific value now trades at a mere $80 per metric tonne, whilst Australia’s Newcastle coal benchmark dropped to $94/mt.
– Potentially halting a multi-year growth trend for coal, coal-fired electricity generation across Asia was down 3% from the same January-April period of 2024, mostly led by lower Chinese demand, whilst only the Southeast Asian nations of Vietnam and Bangladesh posted annual increases.
Tesla’s Chinese Deliveries Post Another Disappointing Month
– Despite pulling off a slight recovery after tariff war-induced stock gyrations, US electric vehicle manufacturer Tesla remains under pressure as its vehicle shipments from China declined for a seventh consecutive month.
– Whilst nationwide sales of EVs and hybrids in 2025 to date have risen by 42% year-over-year to 1.14 million units, Tesla’s shipments are 6% down from a year ago, with analysts linking the decline with Elon Musk’s increasingly political image.
– Even in Western markets, Tesla’s outlook remains bleak – France witnessed only 863 new Tesla registrations in April, a 60% plunge from 2024 readings, whilst Australian sales saw a whopping 76% year-over-year decline.
– Tesla’s arch rival, China’s BYD posted its best-ever month in April with sales topping 1.4 million units (compared to 936,000 units in April 2024), mostly driven by EVs that overtook plug-in hybrids for the first time since early 2024.
Low Prices and Bright Futures Set to Kickstart PE Buying Frenzy
– Private equity’s insatiable appetite for shale acreage has ultimately led to the 2023-2024 consolidation across the US oil and gas markets, and analysts are predicting that a similar wave of PE-driven acquisitions is set to emerge in the mining sector.
– According to S&P Global, global production of most battery metals has been declining as low prices have hindered the commissioning of new capacity, with lithium being the only notable example.
– To meet the energy transition’s rising metal needs, a lot of incremental capital will be required from private equity; but in 2025 to date, PE firms have only invested a mere 153 million in new mining projects, a stark contrast to the $4.4 billion invested in the same period last year.
– US private equity funds have been somewhat hesitant to invest, with Apollo’s $1.8 billion investment into US Silica marking the only bright spot, whilst Saudi Arabia’s PIF still holds the record for the highest-value deal ($3.3 billion into Saudi Iron & Steel).
US Imports of Copper Go From Strength to Strength
– US imports of copper have been breaking all-time highs in recent months, with more than 170,000 metric tonnes shipped in April, in anticipation of Trump tariffs on base metals that are yet to be announced.
– Copper has been excluded from President Trump’s reciprocal tariffs as the White House is still awaiting the results of its Section 232 national security investigation, but that has not stopped traders from ratcheting up imports to unprecedented levels.
– The US copper premium has drastically reduced inventories across Asia, with stock held in the Shanghai Futures Exchange falling 60% month-over-month in April to 89,307 metric tonnes, marking the sharpest monthly withdrawal on record.
– The benchmark three-month LME copper contract has been trading around $9,400 per metric tonne, up some $200 per metric tonne since the beginning of May, with traders expecting prompt trading to move into a much steeper backwardation soon.
