OK I did some more tests.
Disabled the Azure Storage plugin. Full size and automatic thumbnails generate correctly on the local storage.
Enabled the Azure Storage plugin with the “Keep local files” option enabled. Full size and automatic thumbnails generate correctly on the local storage but only the full size shows up on the Azure blob storage, the thumbnail files are also on Azure storage but with a size of zero.
It looks like the problem is when the local thumbnail versions are being copied to the blob storage. Any recommendations on what to try next? Many thanks.