Commodity tracker: 5 charts to watch this week
Iraq’s oil production forecast tops this week’s rankings as the country’s standoff against international oil companies could jeopardize its capacity expansion plans. Also worth watching this week are falling iron ore prices, declining fuel switching capacity in the United States, rising gas prices in Europe and a firm demand for crude in the North Sea.
1. Iraq’s oil capacity expansion plans are under threat
What is happening? International oil companies are trying to escape Iraq’s unattractive oil assets. The standoff between the CIOs and Iraq over the management of some of the country’s largest oil fields came to a head last week after ExxonMobil said it was seeking arbitration against the state-owned company Basrah Oil Co. on the US major’s stalled sale of its stake in West Qurna 1 sell. Exxon is joined by Lukoil and BP, who are also considering exiting or reducing their presence in Iraq.
And after? Without the capital, expertise and technology of IOCs, Iraq will struggle to maintain oil production in some of its fields, let alone reach the coveted level of 7 million barrels per day. Its current production capacity is around 5 million bpd. Exxon and Lukoil both wanted to sell shares to Chinese companies, which are the party most interested in owning a larger share of Iraqi oil. Iraq is China’s third-largest oil supplier, and many major Chinese energy companies already have stakes in Iraqi mega-fields.
2. The supply of iron ore by sea is tight but the prices
What is happening? The world’s four largest iron ore producers – Rio Tinto, BHP, Vale and Fortescue Metals Group – reported combined sales of 265 million tonnes in the April-June quarter, the weakest second-quarter performance in five years. Wet weather, pandemic-induced labor shortages and operational issues have contributed to the lack of volume growth overall. But the miners benefited from Platts’ benchmark iron ore index, which averaged nearly $ 200 / t CFR during the quarter, paving the way for windfall financial profits.
And after? July iron ore exports are generally lower as producers try to ship as much as possible before June 30, which is the end of Australia’s fiscal year and half-year for others. Supply tension will therefore remain a problem. Chinese factories have been ordered to cut production from the end of July to help cut emissions, and seasonal factors could reduce demand for raw materials. Platts IODEX, the iron ore benchmark, finally fell below $ 200 / mt on July 29. It remains to be seen whether it will continue to decline.
3. The intensity of gas-fired electric combustion in the United States increases as the switching capacity of fuel decreases.
What is happening? As temperatures in the United States peak in the summer, the intensity per degree of gas-fired electricity consumption in the United States has increased, implying that generator demand for fuel has become less sensitive to the demand. gas prices rise as fuel switching capacity decreases. Despite an increase of more than $ 2 / MMBtu in the US benchmark gas Henry Hub since last summer, the demand for electricity consumption at a given temperature has been only slightly lower than it was at the same temperature last summer.
And after? Recent withdrawals of coal-fired plants could be the cause of the decline in available switching capacity, which means that US producers are now dependent on a smaller fleet of coal-fired plants. Increased reliance on coal this summer recently pushed stocks to their lowest level in five years, according to forecast estimates from S&P Global Platts Analytics. As inventories decline, coal prices could be set to rise this winter, which could make gas-fired electricity prices more competitive again, even at current levels of around $ 4 / MMBtu .
4. The battle for global LNG volumes pushes the TTF benchmark to a record level
What is happening? Dutch TTF gas prices crossed the 40 euros / MWh mark for the first time on July 29, as European markets continued to fight for global LNG supply to the region. The one-month TTF contract was seen trading up to 40.40 euros / MWh at the start of the session, with the previous high before the 2021 rally being 35.55 euros / MWh in October 2008, according to data. by Platts. Europe and Asia are seeking to secure LNG volumes to replenish their stocks before the next winter delivery period.
And after? With the EU’s gas storage sites currently only 55% full, fears that stocks will reach an appropriate level before winter has been a big part of pushing gas prices up to skyrocketing highs of EUR 40 / MWh. A key question – and one likely to continue to influence market fundamentals – is how full Europe’s storage sites will be by the start of the withdrawal season, and whether stocks will be enough to get across Europe to another cold winter. Storage in northwestern Europe is expected to reach 85% capacity by the end of October, below the low of 86% in five years, according to Platts Analytics forecasts. “This winter is going to be very tight,” said James Huckstepp, chief analyst at Platts Analytics.
5. Firm demand keeps the North Sea crude market strong
What is happening? The North Sea crude oil market, home to Platts Dated Brent, the world’s largest benchmark for physical crude, recently saw strong demand despite a few volatile weeks for crude futures. Interest in buying dated August loading Brent basket grades, such as Brent-Ninian-Blend, Forties, Oseberg, Ekofisk, and Troll, has been strong, with very little unsold cargo.
And after? The North Sea market performed the best compared to other crude oil markets in the Atlantic Basin. West African crudes came under pressure due to weak demand from Asia, while US crudes cleared at a slow pace due to uneconomic arbitrage to Europe and ballast. But it remains to be seen if support continues, with some traders suggesting that if the backlash eases somewhat, West African and US crudes could again put downward pressure on North Sea differentials.