New begginings (Weekly summary 04/01)

There have been quite a few interesting events to analyze this week, and below I list the most noteworthy news. Let’s get started:

• The Chinese economy is going through a delicate phase, reflected in the poor performance of the markets at the start of 2025 and indicators such as the manufacturing PMI, which highlight a worrying industrial slowdown. With the CSI 300 and Hang Seng showing significant declines, the economic outlook for the Asian giant continues to signal fragility. Additionally, Donald Trump’s return to the White House and potential protectionist measures add further headwinds to an export-driven model already under pressure.

   

   

  

   

  The yuan continues to weaken, moving further away from the level set by the People’s Bank of China, while sovereign bond yields remain low, reflecting the massive liquidity injections made at the end of 2024. In this context, the Chinese Communist Party faces the challenge of delivering the promised 5% growth target for 2025, likely requiring an increase in fiscal deficit and more stimulus measures, following the guidelines set in December by the Politburo and the Central Economic Work Conference.

  The big question is when these measures will be announced. March seems the most likely time, coinciding with the Two Sessions, where the CCP typically outlines its annual plans. The focus is expected to be on domestic consumption and the real estate sector, both critical to reigniting the economy. However, if economic deterioration accelerates, emergency measures outside the official calendar cannot be ruled out.

  

   

• The uranium market has started the year with an explosive announcement: Inkai, the joint venture between Cameco and Kazatomprom, has temporarily halted production, citing administrative issues—an explanation that seems unlikely. This is no trivial matter, as Inkai is one of the market’s highest-producing and longest-lifespan assets.

  

   

  In a multipolar world where the West and Russia sit on opposing sides, this situation was bound to escalate. Speculation had already been growing that Cameco might decide to sell its 40% stake in the Inkai joint venture in Kazakhstan. This would allow the company to redirect resources toward new mining projects in Canada in partnership with its French ally Orano. By doing so, Cameco could mitigate risks associated with regulatory uncertainty, taxes, and logistical challenges in Kazakhstan, ensuring greater predictability in meeting its long-term contractual commitments.

  It also wouldn’t be surprising if Kazatomprom, Kazakhstan’s state-owned company, decided to delist from the London Stock Exchange and return to operating as a private entity. Without the regulatory and reporting demands of a public company, Kazatomprom could better align with the interests of the Kazakh government, especially in a context where neighbors like China and Russia demand all the uranium the country can produce. The BRICS nations could offer long-term contracts that free Kazakhstan from reliance on Western buyers, eliminating concerns about sanctions and costly logistical routes for shipping uranium to the West.

  We are inching closer to a game of musical chairs, as we’ve mentioned before, where a utility fails to receive the material it has contracted, triggering panic in the uranium market.

• The definitive cut of Russian gas flowing through Soviet-era pipelines via Ukraine marks the end of an era in which Moscow dominated European energy markets. The closure of transit primarily affects regions like Transnistria, which faces an immediate energy crisis due to complete reliance on these flows. Local populations have been instructed to adapt to the lack of heating, a stark reminder of the human impact of such geopolitical decisions. In contrast, EU countries such as Austria and Slovakia have already secured alternatives through pipelines from Norway and LNG supplies from the United States and Qatar.

  For Ukraine, the end of the agreement represents a loss of up to $1 billion annually in transit fees, prompting the government to quadruple domestic gas transport tariffs, impacting local industries. However, from Ukraine’s perspective, this is seen as a strategic victory, further weakening Russia’s finances and reducing Europe’s dependence on Russian gas.

  

   

  For Russia, the losses are significant, estimated at nearly $5 billion in gas sales. This financial hit compounds the loss of market share, which at its peak accounted for 35% of Europe’s gas consumption. With routes like Nord Stream and Yamal closed and exports via Ukraine drastically reduced, Moscow faces a fragmented energy landscape, relying on alternative markets such as Turkey and Asia.

  For Europe, the challenge is far from over. While supply sources have been diversified, the infrastructure and costs associated with this transition remain high. Amid cold temperatures and fears of disruption, European natural gas prices have surged above €50/MWh, with inventory levels dropping by approximately ~0.5% daily, potentially reaching critical lows by the end of the winter season in March.

  

   

  High prices in Europe are already affecting Asia, as both regions compete for the same LNG. Prices on the JKM (Japan and Korea index) are hovering around $14/MMBtu, four times higher than comparable prices in North America.

  

   

  Across the Atlantic, the impact is also being felt amid a polar vortex. The year has started with fireworks, as Henry Hub contracts for February rose 15% and those for March by 9%, temporarily exceeding $4/MMBtu. While long-term fundamentals remain very positive, in the short term these prices are unsustainable. Many production capacities are profitable at these levels, triggering a typical capital cycle.

• The narrative surrounding oil, driven by its fundamentals, is beginning to shift. It’s important to remember where we’re coming from: the EIA predicts a significant increase in non-OPEC supply, which will result in a surplus of 1Mb/d in the first quarter (noting that Q1 is seasonally the period of lowest demand).

  

   

  However, when examining the physical market, we see that timespreads continue to increase the backwardation in the futures curve, which contradicts the earlier narrative; one of the two perspectives is clearly mistaken.

  

   

  Analyzing the drivers of the supply increase predicted by the EIA, starting with U.S. oil production, we observe stagnation over the past year. This seems to validate the thesis about the geological degradation of shale basins.

  

   

  The Q4 2024 energy survey published by the Federal Reserve of Dallas paints an interesting picture for the U.S. oil and gas industry. While expectations are moderate, they remain optimistic regarding prices and decidedly expansive in terms of investment—necessary given the geological challenges.

  Executives estimate WTI prices at $69 per barrel in six months and $71 in twelve months, while Henry Hub is projected at $2.97/MMBtu and $3.28/MMBtu over the same periods. These figures, though not particularly high, suggest a certain stability in the market, particularly for oil, supported by expectations of a more favorable regulatory environment under the Trump administration. Most notably, despite these relatively modest price projections, companies plan to increase CAPEX in 2025. The majority of capital will go toward drilling and completing wells, as DUCs (drilled but uncompleted wells) and the best inventory have been depleted since 2020, necessitating renewal.

  For natural gas, the outlook is more conservative. While projected Henry Hub prices show a slight uptick toward $3.28/MMBtu in twelve months, abundant supply remains a challenge for balancing the market. Nonetheless, there is a general perception that there is room for improvement, especially if demand strengthens in key sectors.