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Commodity tracker: 6 charts to watch this week

Summary:
The impact of air freight demand on jet fuel, a rally in Australian heavy crude prices, US soybean exports, buoyant silver, and bearish natural gas markets are all in the sights of S&P Global Platts’ editors this week. Here’s our weekly selection of unfolding commodities and energy market trends.  1. Stalling demand for air freight could hit jet fuel     What’s happening? A recent slide in global demand for air freight could be a harbinger of weaker jet fuel, despite current strong levels on resilient spot demand. While global air passenger traffic has grown every month since the 2008 financial crisis, air freight demand is contracting, according to data from the International Air Transport Association. Air freight demand fell 3.4% year-on-year in May, the seventh consecutive month of

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The impact of air freight demand on jet fuel, a rally in Australian heavy crude prices, US soybean exports, buoyant silver, and bearish natural gas markets are all in the sights of S&P Global Platts’ editors this week. Here’s our weekly selection of unfolding commodities and energy market trends.

 1. Stalling demand for air freight could hit jet fuel

 

Commodity tracker: 6 charts to watch this week

 

What’s happening? A recent slide in global demand for air freight could be a harbinger of weaker jet fuel, despite current strong levels on resilient spot demand. While global air passenger traffic has grown every month since the 2008 financial crisis, air freight demand is contracting, according to data from the International Air Transport Association. Air freight demand fell 3.4% year-on-year in May, the seventh consecutive month of contraction, driven by weakness in the Asia-Pacific region.

What’s next? A downward trend in the global composite Purchasing Managers Index, a measure of business confidence, suggests passenger demand growth will continue to slow in the near term, according to IATA. Global composite PMI is currently at levels not seen since 2016. Trade tariffs and a slowing Chinese economy are contributing to a slowdown in trade, with the US-China tensions already causing damage to the air cargo sector, said IATA.

 

2. IMO 2020 prompts rally in Australian heavy crudes

 

Commodity tracker: 6 charts to watch this week

 

What’s happening? Price differentials for Australian heavy sweet crudes surged to record highs this week as Asian refiners actively seek feedstock grades for blending into low sulfur fuel oil in preparation for stricter marine fuel sulfur requirements in 2020. Australian heavy grades Van Gogh and Pyrenees crude were heard to have traded recently at premiums of $13-$14/b to Platts Dated Brent, FOB, for September-loading cargoes, making them among the most expensive crudes in the world.

What’s next? Australian crude suppliers are stepping up efforts to help quench Asian refiners’ thirst for heavy low sulfur crude. Australia’s heavy sweet Vincent crude has returned to the spot market after a production suspension of more than one year, with Japanese trading house Mitsui set to lift a cargo in mid-August. Woodside Energy is also expected to start marketing heavy sweet crude cargoes from the Greater Enfield project later in the third quarter or early in Q4, industry sources said.

 

3. US soybean farmers pay close attention to trade tensions

 

Commodity tracker: 6 charts to watch this week

 

What’s happening? Soybean shipments from the US to China fell 81% year-on-year to 5.4 million metric tons between July 2018 and March this year, according to the US Census Bureau. At the same time, China’s imports from South America surged. Before China imposed a retaliatory import tariff of 25% on soybeans last July, the US sent over 60% of its soy shipments to China.

What’s next? The carryover stock of US soybeans in the 2018-19 marketing year (September-August) is expected to hit an all-time high of 28.56 million mt, up 140% year-on-year, data from the US Department of Agriculture shows. Since there is no substitute for Chinese demand, US soybean farmers and traders may continue to hold on to their inventories and wait for a trade deal with China in September.

 

4. Investor, industrial demand helps silver play catch-up

 

Commodity tracker: 6 charts to watch this week

 

What’s happening? Silver has been catching up with its sibling gold, which is again moving higher amid concerns about the global economy and US-China trade tensions. Silver is back in investors’ favor despite being the only major metal that has seen industrial use drop during the past 20 years, due to the decline in photographic use. Often referred to as “poor man’s gold,” silver is cheaper to buy and trade, yet often tracks bullion’s performance.

What’s next? Industrial demand for silver could rebound in the coming years owing to the rollout of 5G telecom networks. With 5G operating at higher frequencies, increased silver-based electromagnetic shielding is required to reduce exposure, according to consultancy Metals Focus. The technology requires many more base stations than its predecessor 4G, while silver antennas are increasingly being used at base stations to minimize signal losses.

 

5. US natural gas prices sink to new lows…

 

Commodity tracker: 6 charts to watch this week

 

What’s happening? Prompt-month futures prices at Louisiana’s Henry Hub sank to a more-than-three-year low last month under pressure from strong US production and a recent pushback in pipeline exports to Mexico. In July, the benchmark US gas price averaged just $2.30/MMBtu, its lowest since May 2016, S&P Global Platts data shows. It came as the country’s production hit a record high, at nearly 90 Bcf/d, and saw its strongest monthly average to date, at 88.4 Bcf/d.

What’s next? More supply is promised for the approaching winter, with inventories within a 125 Bcf deficit to the five-year average, after a bearish storage injection announced by the US Energy Information Administration Thursday. Forwards markets have responded by pricing in a lower-for-longer environment. On Wednesday, the rolling 12-month forward curve at the Henry Hub was assessed at $2.42/MMBtu, according to Platts M2MS data.

 

6. …as stocks in Central and Eastern Europe fill quickly

 

Commodity tracker: 6 charts to watch this week

 

What’s happening? Gas storage inventories in Central and Eastern Europe are at an all-time high, with 85% of capacity already filled and an 8 Bcm year-on-year surplus. Most countries, including Hungary and Slovakia, have already stored more gas now than at the start of last winter in October 2018. It is likely they will get very close to maximum capacity during the next two months.

What’s next? Healthy stocks should keep a lid on prices over the winter season, amid concerns about the transit of Russian gas through Ukraine from the start of next year, when the current transit agreement expires, and a possible delay in the commissioning of the Nord Stream 2 pipeline, which is intended to replace the Ukraine route. Market participants are building up stocks to minimize disruptions.

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