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Commodity Tracker: 5 charts to watch this week

Summary:
In this week’s pick of energy and commodity charts, Asian jet fuel suppliers feel the pinch from Hong Kong’s weak demand as protests in the city persist. Plus: Fujairah stocks and IMO 2020, global gas exporters meet in Equatorial Guinea, and more. 1. Hong Kong unrest causes jet fuel demand to nosedive     What’s happening? Prolonged political protest in Hong Kong appears likely to continue taking a heavy toll on the city’s oil consumption. Aviation fuel demand in particular has trended sharply lower in recent months, on faltering air passenger and cargo traffic volumes. Hong Kong has been gripped by social unrest since June, with protests prompting a major airport shutdown on August 12. Aircraft activity, freight and passenger figures all sharply fell in October as the demonstrations

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In this week’s pick of energy and commodity charts, Asian jet fuel suppliers feel the pinch from Hong Kong’s weak demand as protests in the city persist. Plus: Fujairah stocks and IMO 2020, global gas exporters meet in Equatorial Guinea, and more.

1. Hong Kong unrest causes jet fuel demand to nosedive

 

Commodity Tracker: 5 charts to watch this week

 

What’s happening? Prolonged political protest in Hong Kong appears likely to continue taking a heavy toll on the city’s oil consumption. Aviation fuel demand in particular has trended sharply lower in recent months, on faltering air passenger and cargo traffic volumes. Hong Kong has been gripped by social unrest since June, with protests prompting a major airport shutdown on August 12. Aircraft activity, freight and passenger figures all sharply fell in October as the demonstrations intensified, data from the Airport Authority of Hong Kong showed. Freight volumes fell 5.6% on year to 419,000 mt in October, for a seventh consecutive month of decline.

What’s next? Declines in Hong Kong’s jet fuel imports have raised alarm bells among Chinese and other regional aviation fuel suppliers, including South Korean refiners. Months-long protests could jeopardize the city’s role as a key aviation hub and stable jet fuel supply outlet. Refineries in China supplied 1.06 million mt or 2.78 million barrels/month of jet fuel to Hong Kong in the third quarter, down 7.1% on year. South Korean refiners supplied around 800,000 barrels/month of jet fuel to Hong Kong over the past few years, but managed to export only 1.24 million barrels over Q3, down 31.1% on year.

 

2. Iron ore price rebounds despite rising global supply

 

Commodity Tracker: 5 charts to watch this week

 

What’s happening:  Iron ore prices are rebounding, reaching $87.80/mt for 62% Fe fines delivered to China late last week. The uptick comes despite an increase in global supply since production curbs following Vale’s January tailings dam burst, which provoked a five-year spike to over $120/mt in July. Iron ore is supported by the continuing growth trend in steel output in China, as well as seasonal factors. Analysts say a short-term rebound in the key steelmaking ingredient is not unusual before the Chinese winter mill production cuts for pollution control, which boost steelmaking margins, and ahead of the rainy season in Brazil, which typically disrupts shipments.

What’s next? Iron ore and steel derivatives markets in Asia point to continued strength in iron ore prices and are holding up sentiment. The Chinese state council’s relaxation in recent days of restrictions on infrastructure funding has improved prospects for future steel demand and reinforced confidence in the economy. “Steel demand from the property market remains strong, which helps to digest a lot of inventory,” a Chinese trader said. Weaker demand is nonetheless foreseen for high impurity products, and sources report a shift in preference towards higher grade cargoes, of 65% Fe and above, lump products and pellets, which can improve blast furnace productivity and help reduce carbon emissions as they require less coal to be used in the blast furnace mix.

 

3. Fujairah stocks of heavy residues soar ahead of IMO 2020

 

Commodity Tracker: 5 charts to watch this week

 

What’s happening? Stockpiles of bunker fuels and other heavy residues and distillates have climbed to a record in Fujairah, according to data released last Wednesday by the Fujairah Oil Inventory Zone, as shippers switched fuel types to meet new rules taking effect in January. Heavy distillates and residues rose 10% to 15.425 million barrels as of November 18, the highest level since data began to be compiled in January 2017.

What’s next? Demand is shifting from high-sulfur fuel to low-sulfur fuel as the International Marine Organization regulation looms. The price of 380 CST high-sulfur bunker fuel has been dropping as the IMO rule requires ships to lower their fuel sulfur content to no more than 0.5%, from 3.5% currently. S&P Global Platts is the official publisher of the oil products data. Fujairah has the Middle East’s largest commercial storage capacity for refined products.

 

4. Gas exporting countries meet as backlash against fuel grows

 

Commodity Tracker: 5 charts to watch this week

 

What’s happening? Heads of state from Gas Exporting Countries Forum (GECF) member countries are meeting in Equatorial Guinea to discuss the state of the global gas market this week. With global gas prices having been especially low in 2019, the GECF – whose members include gas heavyweights Russia, Qatar and Iran – will have much to ponder.

What’s next? Unlike its sister organization for the oil sector, OPEC, the GECF does not get involved in coordinated market action, instead focusing on promoting the use of gas. But with prices in the doldrums – due to an oversupplied global LNG market – and an increasing backlash against fossil fuels from environmental groups, the GECF’s members may also look at ways to preserve the role of gas in the global energy mix for decades to come.

 

5. EU benchmark power contract sinks to 15-month low

 

Commodity Tracker: 5 charts to watch this week

 

What’s happening? German year-ahead power prices have fallen to a 15-month low as EU carbon allowance prices devalued by 20% since July’s 10-year high. German power prices are still driven by coal generation costs despite a sharp decline in output this year as cheap gas generation displaced the least efficient hard coal units.

What’s next? Low gas prices are set to stretch deeper into 2020, keeping a lid on power as well as carbon prices. Slightly colder weather forecasts saw contracts rebound on November 22. With gas storage still almost full, only a cold winter or supply disruption could deplete storage sufficiently to prevent another bearish summer. Beyond that, nuclear and coal closures are set to tighten reserve margins, with Cal 2023 trading at a premium to Cal 20. Meanwhile carbon traders continue to eye Brexit ahead of the UK elections on December 12, and to anticipate the expiry in mid-December of Dec-19 options and forward contracts.

 

Reporting by Stuart Elliott, Andreas Franke, Paul Hickin, Diana Kinch, and Philip Vahn

The post Commodity Tracker: 5 charts to watch this week appeared first on Platts Insight.

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