Energy market analysis Jan. 21, 2026

How China sets short-term oil prices and OPEC pulls the strings

“When markets tighten, price power quickly returns to those who control spare capacity.” – Charles Kennedy, Oilprice.com

Key points:

• China is now driving short-term oil price movements as its opaque import patterns, refining margins and strategic stockpiling increasingly shape marginal demand and short-term price discovery.
• OPEC’s influence has shifted to the medium term.
• In times of actual supply stress, price power returns to producers.

For most of the past decade, oil markets have treated OPEC decisions as the primary signal for price direction. That hierarchy is being tested, but not overturned. What has changed is where traders look for short-term signals. Those signals are increasingly coming from China – not because Beijing controls supply, but because its buying behavior now dominates marginal demand and short-term price discovery.

As reported by Reuters, China has overtaken OPEC as the most influential force in oil price formation, driven by the scale and timing of its crude purchases rather than any formal attempt to drive prices. The change shows us how oil markets have become increasingly demand-driven, with China right in the center.

China is the world’s largest importer of crude oil, but its influence extends beyond the volumes that make headlines.

Refinitiv analysts recently noted that the traditional view of producers such as OPEC+ as the primary oil price setters “has been challenged by China in 2025,” and explained that Beijing’s use of strategic stocks to provide a crude oil price floor and ceiling has effectively crowded out the producer group’s price direction this year.

Unlike OECD buyers, China’s oil system combines state-owned majors, independent refineries and strategic storage entities whose buying behavior is opaque and often poorly reflected in real-time data. Cargoes can move to commercial storage, strategic reserves or floating storage with limited visibility. That uncertainty itself has become a market variable.

When Chinese purchases accelerate, prices tend to firm even if global supply remains healthy. When imports slow, prices fall even with OPEC output restrictions. Over the past two years, this pattern has repeated itself often enough that traders now treat Chinese import momentum as a more direct price driver than OPEC production targets.

OPEC (and Saudi Arabia in particular) still controls most of the world’s spare capacity. That capacity continues to anchor long-term expectations. But spare capacity matters less when demand fluctuations dominate short-term prices.

Chinese refining margins have become an early indicator of price direction. When margins improve, especially among independent refiners, crude oil imports typically rise. When margins tighten, buying slows quickly.

No, it does not mean OPEC is irrelevant. The cartel’s policy decisions still shape the medium-term balance sheet and set limits on price expectations. But the focus of the market has shifted – traders now look at Chinese customs data, refining activity and policy signals with the same intensity once reserved for OPEC communiqués.

None of this means that China has replaced producers as the ultimate price setter. China’s influence operates at the margin and in the short term, not in moments of actual supply stress. Strategic inventories and opaque buying can move prices when barrels are plentiful, but they cannot hedge prices during a real supply shock, nor defend a floor once inventories normalize and demand slows.

When markets tighten, price power quickly returns to those who control spare capacity. On that front, OPEC (and primarily Saudi Arabia) still holds the decisive leverage.

Price Crude oil – Brent March 2026 ($/barrel) – month cloud candle, log scale

SMRs Explained: Real-World Economics, Fuel Economy & The Race to Scale

“Traditional nuclear projects are not just power plants; they are multi-decade civil engineering nightmares that gobble up capital faster than they produce watts.” – Michael Kern, oilprice.com

Key points:

• The shift to Small Modular Reactors (SMRs) is driven by rising global electricity demand, especially from AI data centers, and the limitations of intermittent renewables, positioning nuclear power as the essential source of 24/7 “firm” baseload capacity.
• SMRs bypass the financial risks of traditional mega-projects such as Vogtle by offering shorter build times (3-5 years) and lower initial costs, exchanging “economies of scale” for “advantages of series production” via factory-built components.
• Key challenges for the SMR industry include the need for mass production to achieve economic viability, managing waste issues, and navigating geopolitical risks associated with a highly concentrated global uranium supply chain.

Nuclear power is currently experiencing its “Silicon Valley” moment. After decades of being treated like a dinosaur technology – too slow, too expensive and too politically toxic – the industry has turned to something it calls the Small Modular Reactor (SMR). The goal is to stop building energy cathedrals and start building energy devices.

The market fundamentals are finally in place for a new era. Global electricity demand is rising at twice the rate of total energy demand, pushed over the edge by the relentless growth of AI data centers and the slow electrification of the global vehicle fleet. Generation by the world’s fleet of nearly 420 reactors is already on track to reach record levels by 2025.

This is about a global realization that “intermittent” renewable energy cannot bear the burden of a 24/7 civilization alone. Baseload capacity is no longer a luxury; it is the price of admission to the modern economy.

Why Small is the only way Big Nuclear survives

If you’ve spent time reading about energy, you know that the term “Small Modular Reactor” is used as a catch-all term…. it actually refers to three different shifts in how we think about the atom.

First, “Small” means anything up to 300 MWe – roughly one-third the output of a traditional Gigawatt-scale power plant… enough to power about 250,000 homes or a massive industrial complex.

Second, “Modular” is the real economic engine. Instead of custom designing every pipe and valve on a muddy construction site, components are built in the factory and shipped by truck or train.

Finally, “Reactor” is where physics gets complex. Current designs are not simply “shrunken” versions of 1970s light-water tech. We are seeing a movement toward Generation IV concepts: molten salt reactors that cannot melt because the fuel is already liquid, and gas-cooled reactors that can provide the 700°C+ process heat needed to make steel or hydrogen.

Why Megaprojects Died in Georgia

Traditional nuclear projects like the Vogtle plant in Georgia or Hinkley Point C in the UK have become legendary for their cost overruns. They are not just power plants; they are multi-decade civil engineering nightmares that gobble up capital faster than they produce watts. Vogtle ended up with more than $30 billion nearly double the original estimate.

No private investor wants to sit on a $30 billion debt for 15 years before the first dollar of revenue trickles in. SMRs try to get around this “Valley of Death” by shortening build times to roughly 3-5 years and reducing initial costs to something a mid-sized utility or tech giant can actually afford.

East Builds While West Indents Paperwork

The “Nuclear Renaissance” is already taking place; it just hasn’t reached the Atlantic yet. Of the 52 reactors started since 2017, nearly half are Chinese, and the other half are Russian.

Source: IEA

And the bottleneck is not technology…. it’s fuel. Russia currently controls 40% of the world’s uranium enrichment capacity. Energy security is a hollow promise if you have to buy the uranium from your primary adversary.

AI is the insatiable beast that only nuclear fission can fuel

The tech giants are not buying nuclear power because they have suddenly developed a passion for carbon-free baseload. They’re doing it because their AI roadmaps are running into a physical wall a single ChatGPT query consumes roughly 10 times the electricity of a Google search.

Amazon, Google and Microsoft have realized that wind and solar are essentially “part-time” energy sources. When the sun goes down and the wind stops, the data centers don’t stop. This creates a massive, costly problem called “intermittency” that batteries are not ready to solve on a multi-gigawatt scale.

The SMR is the only one on the menu that offers 24/7 “fixed” power with a footprint small enough to stand next to a server farm.

For the first time in history, the primary driver for nuclear power comes from the private sector, not the state:

• Microsoft: Signed a 20-year PPA to revive Three Mile Island (Unit 1).
• Google: Ordered 6-7 reactors from Kairos Power for 500 MW of clean energy.
• Amazon: Bought a stake in X-energy and signed an MoU with Dominion for SMR sites.
• Oracle: Announced a massive data campus powered by three modular reactors.

These companies have the creditworthiness and long-term horizon to do what traditional utilities cannot: they can guarantee “offtake.” By signing 20-year Power Purchase Agreements (PPAs), they provide the financeability SMR manufacturers need to start their assembly lines.

The $2,500/kW target: Chasing the Chinese cost curve

This is where the marketing brochures usually stop being honest. If you build one SMR, it’s the most expensive electricity on earth. The “Modular” promise only works if you build them like airplanes – in a factory, to scale.

The IEA projects that SMR investment will reach $25 billion annually by 2030. That sounds like a lot until you realize that building the first plant for these modules could consume half that budget before the first reactor is even shipped.

Studies suggest that “learning-by-doing” can reduce capital costs by 5% to 10% for every doubling of production. However, a report by Germany’s BASE suggests that an average of 3,000 SMRs would need to be produced before achieving true economies of scale from mass production.

This is the central rub of the industry. No CEO wants to tell his board that they are the “guinea pig” for an unproven $1 billion reactor.

The $1.5 trillion industrial heat price

Most people think of nuclear power as a way to keep the lights on. But electricity is only about 20% of global primary energy demand. The real monster in the room is Industrial Process Heat. If you want to make steel, cement or glass, you need temperatures that wind and solar simply cannot provide by wire without massive efficiency losses. Today, 89% of that high-temperature demand is met by burning fossil fuels.

The SMR – specifically the High Temperature Gas Reactor (HTGR) – is the only carbon-free technology that can be “inside the fence” with a chemical plant and deliver 750°C of steam.

According to a 2025 LucidCatalyst study, the potential market for industrial SMRs could reach 700 GW by 2050. We are talking about an investment opportunity of $1.5 trillion.

If SMRs cannot crack the industrial heat market, Net Zero is a mathematical impossibility.

Price Baseload Electricity supply year 2027 (eur/MWh) – week cloud candle, log scale

North America leads largest increase in LNG exports since 2022

“The US is poised to become the world’s first LNG exporter to cross the threshold of 100 million tons of LNG exports in a single year by 2025.” – Tsvetana Paraskova, oilprice.com

Rising liquefied natural gas exports from new North American export facilities likely boosted global LNG shipments in 2025 the most since 2022, Kpler data show.

The annual increase in 2025 would be the steepest increase in global LNG exports since 2022, when shipments grew by 4.5% compared with 2021.

North America was the main supplier of new LNG volumes as Canada’s first-ever export facility, LNG Canada, began shipments in mid-2025, and Plaquemines LNG in Louisiana launched operations and increased shipments during the year.

With increasing capacity and volumes, the US is poised to become the world’s first LNG exporter to surpass the threshold of 100 million tons of LNG exports in a single year by 2025.

Additional LNG supply is poised to hit the market between 2026 and 2030 as more U.S. export facilities come online and Qatar begins shipments from its massive capacity expansion of its North Field export facilities.

Despite warnings of a near global LNG glut, top Middle East exporters, including Qatar and the United Arab Emirates, see strong demand ahead and signal insufficient investment in supply in the medium to long term.

The UAE is increasing its LNG exports to meet rising global demand that will outpace investment in supply, Energy Minister Suhail al Mazrouei told Reuters earlier in December.

“I agree with his excellency, the minister of Qatar, that the demand will be much, much more than the projects we are seeing,” the UAE official added.

Earlier this month, Saad Sherida Al-Kaabi, CEO of QatarEnergy and Qatar’s Minister of State for Energy Affairs, said global LNG demand will grow, led by increased power needs from AI-related data centers.

Price TTF gas supply year 2027 (eur/MWh) – day cloud candle, log scale

Why coal will remain in one chart

“Years of demonizing coal by climate alarmists seem to have failed.”

Bloomberg Opinion columnist and chief energy correspondent Javier Blas posted a graphic on X of the International Energy Agency’s new global coal report showing that coal demand jumped to a record high this year, despite years of attempts by the green-industrial complex to end its existence.

“Global coal demand surged to a record high in 2025, up 0.5% year-on-year to 8.845 million tons (also revised upward by the IEA 2024),” Blas wrote on X, adding, “Now the IEA says 2025 will mark a peak, with consumption falling over the next 5 years. Time will tell, but previous peak predictions were wrong.”

Souce: Internation Energy Agency, Bloomberg Opinion

Years of demonizing coal by climate alarmists seem to have failed. In fact, coal remains structurally embedded in power systems and heavy industry, especially in Asia, even as renewable energy expands.

IEA’s global coal forecast:

• 2025 global coal demand: 8.85 billion tons, a new record.
• 2030 outlook: roughly 3% below 2025 levels, still above pre-2023 standards.
• Coal’s role is shifting from baseload to flexibility, backup and reliability as wind and solar penetration increases.
• Industrial coal use declines slowly; substitution is difficult outside of power generation.

China:

• Consumes more coal than the rest of the world combined and completely determines global trends.
• Demand is roughly flat until 2025, then declines only marginally by 2030. Rapid rollout of renewables reduces share of coal in generation, but coal remains essential for grid stability.
• Coal-to-chemicals and gasification offset declines in cement and steel, creating upside risk to demand forecasts.

India and Southeast Asia:

• India is the main source of net demand growth through 2030, driven by electricity demand, cement, steel and coal-based industrial processes.
• Southeast Asia shows the fastest growth rate, led by new coal power and metal processing.
• Together, these regions offset most of the declines in advanced economies.

Europe:

• Structural decline continues, but short-term coal combustion remains volatile due to gas prices, wind variability and security of supply.
• Coal phase-outs are politically uneven, with delays and exceptions in several countries.

United States:

• Short-term coal demand recovers in 2025 due to higher gas prices, weather effects and explicit federal policy support.
• Long-term trend remains downward, but decline slows materially versus previous expectations.
• Coal plants are increasingly being retained for reliability amid rising power demand and data center loads.

What may irritate climate alarmists is that coal is not going away this decade and will continue to serve as a bridge in a world of rising power demand from AI data centers and other electrification trends until sufficient nuclear power generation comes online – which is a story of the 2030s.

Price ICE Coal delivery year 2027 (usd/t) – week cloud candle, log scale

EU’s Carbon Border Tax goes live and trading partners are not amused

“This could result in a CBAM that is not only significantly less effective, but most likely counterproductive.” – Industry Rep, Irina Slav via OilPrice.com

Key points:

• The EU carbon border adjustment mechanism launched Jan. 1 with the goal of leveling the playing field for European steel, cement and power producers by taxing the carbon content of imports from countries with weaker emissions rules.
• China has threatened retaliation, calling CBAM unfair and discriminatory.
• While CBAM can protect EU industry, it risks higher prices for consumers and escalating trade disputes with major exporters.

On Thursday, Jan. 1, the EU carbon border adjustment mechanism took effect with the aim of improving the competitive position of European goods manufacturers against non-EU companies operating in less stringent emission reduction frameworks.

China was the first to threaten retaliation. It will not be the last.

The carbon border adjustment mechanism, or CBAM for short, was devised to remedy the unintended effects of the world’s most stringent emission reduction standards on the industrial sphere – namely sky-high costs that make the final product uncompetitive. This became especially painful for European makers of things like steel and cement, where the biggest competitor is China – which has nothing resembling the EU’s emission reduction requirements, so its steel and cement are very cheap, and buyers prefer them.

In other words, to boost the competitiveness of European steel and cement manufacturers – as well as electricity producers – the European Union has made sure that cheaper imported steel, cement and electricity are no longer so cheap. China and India are not happy about this – and there are things they can do that will not help the competitiveness of European companies.

As soon as the CBAM went into effect, China’s Ministry of Commerce issued a statement calling the legislation “unfair” and “discriminatory,” Bloomberg reported.

“We will resolutely take all necessary measures to respond to unfair trade restrictions,” the ministry said in its statement.

China actually has its own carbon market, has had it since 2021, and it is the largest carbon market in terms of the volumes of carbon emissions covered by it. With China, it’s not about selling the idea of carbon markets to third countries; it’s about competitiveness. And China is not happy that its competitiveness will be affected.

Meanwhile, Indian steel imports are about to dry up as Indian steel producers do not seem to be included in the “inconsistencies.” India is the world’s second-largest steel producer after China and exports up to 66% of its output to the European Union.

This is about to drop sharply next year because India’s steel production takes place in blast furnaces fired by coal, which is incompatible with the European Union’s emission reduction plans.

The United States will not be happy about this either, and it will soon make its displeasure known.

Price Emission Rights – Dec-26 contract EEX (eur/t) – day cloud candle, log scale

Brussels puts brakes on internal combustion engine ban 2035

“The European Commission will come up with a clear proposal to abolish the ban on internal combustion engines. It was a serious industrial policy mistake.” – Manfred Weber, European Parliament

The European Commission is preparing to backtrack from its planned 2035 ban on sales of new internal combustion engine cars, bowing to pressure from Germany, Italy and carmakers struggling to compete with U.S. and Chinese rivals, according to Reuters. The announcement is expected on Tuesday.

EU and industry sources say the ban could be delayed by five years or softened indefinitely, turning a once-fixed rule into something more aspirational. The reversal would mark the bloc’s biggest retreat from its green agenda in the past five years.

“The European Commission will come up with a clear proposal to abolish the ban on internal combustion engines,” said Manfred Weber, head of the European Parliament’s largest political group. “It was a serious industrial policy mistake.”

Traditional automakers such as Volkswagen and Stellantis have lobbied hard for relief, claiming that EV demand has lagged, costs remain high and charging infrastructure is uneven. EU tariffs on Chinese EVs have hardly eased the pressure.

“It’s not a sustainable reality in Europe today,” Ford CEO Jim Farley said last week, adding that industry needs were “not well balanced” with EU CO2 targets.

EV-focused companies warn that the rethink gives China an even greater advantage in electrification.

“The technology is ready, charging infrastructure is ready, and consumers are ready,” said Polestar CEO Michael Lohscheller. “So what are we waiting for?”

The 2023 law was intended to force a rapid shift to batteries or fuel cells, with penalties for noncompliance. But European carmakers still lag behind Tesla and Chinese groups such as BYD and Geely on scale and cost. Earlier this year, the EU already granted automakers “breathing room” by spreading 2025 compliance over three years.

Manufacturers now want to continue selling combustion engines alongside plug-in hybrids, range-extender EVs and vehicles that run on so-called carbon-neutral fuels. Commission President Ursula von der Leyen signaled openness to e-fuels and “advanced biofuels” in October.

“We recommend a multi-technology approach,” said Todd Anderson of Phinia, adding that the internal combustion engine “will be around for the rest of the century.”

EV industry players say regulatory pushback will undermine investments.

“It will definitely have an effect,” said ChargePoint CEO Rick Wilmer.

Automakers also want the 2030 target of 55% reduction in auto emissions to be phased in over several years and the 50% reduction target for vans to be scrapped. Germany wants climate credits for low-carbon steel and other upstream measures.

Environmental groups say the EU should stick to the 2035 deadline, claiming biofuels are scarce, expensive and not truly carbon neutral.

“Europe needs to stay the course toward electric,” said William Todts of T&E. “It is clear that electric is the future.”

Whether Brussels actually stays the course, or continues to rewrite the rules when reality intervenes, remains to be seen.