Commodity Tracker: 4 charts to watch this week

The potential imbalance between increasing demand for oil as economies recover from the coronavirus pandemic and uncertain supplies from Iran and OPEC tops this week’s pick of market trends. In addition, Asian refiners are looking for cheaper crude, sales of US federal concessions may resume, and US Pacific markets are rethinking natural gas storage options.

  1. 1. Strong demand supports energy prices as Iranian sanctions relief and OPEC uncertainty remain

What is happening? Energy prices continue to rise, especially now relative to non-energy commodity indices. Oil led the rise of the energy complex, but US natural gas also posted gains. A tightening of the oil balance sheets was expected in the middle of the year and this is now increasingly reflected in the performance of the energy complex. Since early June, Dated Brent has surpassed $ 70 / bbl and is now stretching to around $ 73 / bbl.

And after? Markets are focused on negotiating a nuclear deal between world powers and Iran, which briefly resumed after the Iranian presidential election ended and was then suspended again, along with the next meeting of the OPEC + from July 1 during which supplies for August and potentially beyond will be together. The increase in demand during the summer months, along with the delayed supply of Iranian barrels, mean that the oil market supply will most likely continue to lag demand, even as OPEC continues to decline. ‘cautiously increase its production. This will support continued stock draws. Against this backdrop, there has been a notable decline in some non-energy commodities, particularly industrial metals. Until oil supplies catch up with the normalization of demand, perhaps in the intervening months of the fall, energy commodity prices are expected to remain strong.

  1. 2. The recovery in demand in the West is pushing Asian refiners to look elsewhere for cheaper barrels

Northeast Asian crude oil imports from the North Sea

What is happening? Trading Brent / Dubai futures for swaps, or EFS, the spread – a key indicator of Brent’s premium relative to the Middle East benchmark – hovers near three-year highs so as demand recovery in the West outstrips that in the East, with the UK and many Western European countries leading the global immunization campaign.

And after? Asian refiners are finding it increasingly expensive to purchase cash cargoes from West Suez as the Brent-Dubai benchmark price differential extends the upward momentum, making various grades of crude produced offshore North, Africa and the Mediterranean which are linked to Europe. less economical benchmark than grades linked to Dubai. Independent Chinese refiners set to cut Norwegian Johan Sverdrup crude in the second half of the year, as they prioritize Russian ESPO Blend crude from the Far East and heavy acid qualities from the Middle East and Brazil , according to trade sources of raw materials based in the Shandong refinery complex. South Korean refiners could also curb purchases of 1940s crude in the second half of the year, as they no longer find North Sea crude linked to Brent attractive, Seoul-based commodities trading sources told Platts. .

  1. 3. High Oil Prices May Help Sell US Gulf Lease As Court Orders Biden Ban Lifted

Gulf of Mexico oil potential and US rental ban

What is happening? On June 15, a judge in a US district court in Louisiana ordered the Home Office to end its moratorium on oil and gas leases on federal lands and in offshore waters, challenging the regulatory process used and concluding that the policy probably harmed the economies of producer states. The judge granted a preliminary injunction in the case and ordered Interior to reschedule the sale of Lease 257 in the western and central Gulf of Mexico and the sale of Lease 258 in Cook Inlet, Alaska.

And after? The Biden administration is expected to appeal and could look to other regulatory means to limit lease sales, both ashore and in the Gulf of Mexico. But the US Department of the Interior said it would comply with the judge’s order, meaning the sale of the area-wide offshore lease, which was originally slated for March, could still take place. . Parker Fawcett, North American sourcing analyst for Platts Analytics, said these long-term impacts “were becoming more of a concern with each month that passed the moratorium in place” as producers in the Gulf of Mexico matter a lot. on the acquisition of new leases to continuously advance projects. . “We expect a strong 257 lease sale once completed as a result of this decision, supported by high prices, a slight increase in exploration and long-cycle projects, as well as the long-term uncertainty that weighs on the future of the federal rental program. “Fawcett said.” Onshore lease sales are also expected to see relatively strong results once achieved, particularly with the Biden administration showing its reluctance to target existing leases or drilling permits. “

  1. 4. US Pacific storage region loses 51 billion cubic feet of working gas, but market effect appears minimal

US PGE storage region stock levels

What is happening? PG&E has reclassified 51 billion cubic feet of natural gas in its storage system from working gas to base gas as the company moves away from commercial storage due to state regulations. Despite the spectacular development of gas stocks, the net effect on the gas market is expected to be minimal. PG&E inventories have not fallen below 100 Bcf in years, confirming that volumes now classified as base gas were unlikely to be used.

And after? As demand growth over the next five years shifts to less obvious seasonal sources of demand, such as LNG exports or industry, the need for high deliverability multicycle storage will become more evident. Given the geological limitations of building new salt domed deposits, which allow a quick switch between injections and withdrawals, the market may need to find new ways to rethink storage.

Reporting and analysis by Alan Struth, Philip Vahn, Meghan Gordon and Brandon Evans

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