In this week’s selection of energy and commodities charts to watch, super-oil tankers are in high demand to store oil as prices remain at all-time lows. In addition, regional gasoline prices are converging to historic lows, European demand for steel and aluminum is collapsing, and Asian gasoline markets hardly expect supply relief. surplus.
1. Global crude oil glut creates demand for long-term floating storage
What is happening? Some super tankers are set aside to store crude for up to three years – potentially the longest time on record for floating storage – as traders seek to cash in on oil hoarding to meet current oil demand and pressures. supply shocks. The race to secure floating storage has accelerated considerably in recent weeks, with up to 40 VLCCs and 20 Suezmaxes already placed on long-term charter, according to estimates by S&P Global Platts.
And after? Freight rates and storage costs have exploded as the market faces the prospect of an increase in the amount of oil, just as the destruction of demand from the spread of the coronavirus intensifies. This has raised the stakes over how the world’s largest producers, the United States, Russia and Saudi Arabia, will face the challenges of competing for market share, falling prices and potentially a lack of buyers for their gross.
Go further: Podcast – ‘Cheap Oil’ Takes VLCC Freight For A Bull Ride
2. Weather conditions and oversupply put pressure on gas prices in the regions
What is happening? Global gas prices have converged again, this time around record lows, under pressure from a mild northern hemisphere winter, high gas stocks and an ever-overloaded global market. the JKM The benchmark LNG price fell to an all-time low of just $ 2.26 / MMBtu for the first month, bringing it closer to the fast TTF and Henry Hub prices.
And after? With winter now behind us and the start of the LNG shoulder season, there is little optimism in the market for a recovery in prices, especially with European stocks significantly higher than in previous years and concerns over the impact of the demand for the coronavirus. Producers are feeling the pinch and the industry is watching closely for signs of reduced supply in the coming weeks.
3. European demand for aluminum and steel decimated by the shutdowns of car manufacturers
What is happening? European automakers have stopped production since March 13 in response to the coronavirus outbreak. As the automotive industry is a large consumer of steel and aluminum in Europe, the shutdowns had a marked impact on demand, reducing daily consumption by around 55,000 tonnes of steel and 11,000 tonnes of aluminum.
And after? Blast furnaces across Europe have reacted in slow motion, and players up and down the aluminum value chain have followed suit. Looking ahead, there is little light at the end of the tunnel as automakers continue to revise restart dates.
Go further: Infographic – Demand for European metals and shutdowns of automakers
4. The effect of the coronavirus could wipe out the expected peaks in gasoline demand in Asia
What is happening? The Asian gasoline market has been hit hard by the coronavirus pandemic. Traditionally, Indonesia’s peak gasoline demand occurs during the Muslim fasting month of Ramadan, which begins around the end of April and lasts until the end of May of this year, followed by the Islamic holiday of Eid. al-Fitr. Stricter containment measures could derail this trend. State-owned company Pertamina has already reduced its pre-Ramadan gasoline consumption to around 10-11 million barrels of gasoline in April, from 12.236 million barrels imported by the country in April 2019, according to market sources. In India, the country’s transition to Bharat Stage VI fuels from April 1, which was expected to lead to increased demand for low-sulfur fuels, has so far had a moderate impact on demand due to the “Janta curfew” and the national lockdown have dampened both market sentiment and consumer sentiment.
And after? Market participants will closely monitor US RBOB / Brent Fissure as well as indicators of global economic growth. Asian gasoline crack follows closely the movements of US RBOB / Brent crack, the latter typically increasing during the summer, April through October. However, given the weakness of the RBOB / Brent crack in the US and global GDP, the downward pressure on the gasoline market is expected to persist into the second quarter.
5. Chinese PMI: a V-shaped recovery?
What is happening? After falling to an all-time low of 35.7 in February, China’s manufacturing PMI, a closely watched indicator of economic health, rebounded to 52.0 in March, beating many analysts’ expectations. This doesn’t mean the Chinese economy is coming back to life, just that more than half of the companies surveyed said their production, jobs, new orders and the like were higher than last month – it’s hardly a feat given that the economy was virtually at a standstill in February. Even the National Bureau of Statistics noted that this reading did not mean that the Chinese economy had returned to normal.
And after? Government action to prevent a second wave of infections is likely to dampen economic activity. China has reduced the number of international flights allowed into the country and has closed cinemas again. The Shanghai government went further, ordering tourist attractions to close in April. Sinopec, the country’s largest refiner, expects domestic consumption of petroleum products to more or less recover in the second half of the year. S&P Global Platts survey found that Sinopec’s refinery operating rate was 72% in March, well up from a historic low of 64% in February, but still well below utilization rate Sinopec average last year, which was over 90%. Further measures to shut down the economy will slow demand, meaning that unlike PMI, the shape of the recovery is likely to be far from V-shape.
6. EU electricity demand is expected to plunge 10% in Q2 during outages
What is happening? European electricity demand is expected to fall 10% over the next few months due to coronavirus restrictions, with Italy and Spain worst hit by extended lockdowns of non-essential activities. S&P Global Platts Analytics cut its Q2 demand forecast for the four major eurozone economies (Germany, France, Italy and Spain) by 16 GW, down 11% year-on-year. Early indications for the second half of March show that Italian demand fell by more than 20%, while Germany fell by 9%.
And after? The months of April and May are typically months when electricity demand is low, so further reductions could be a challenge for grid operators as the share of renewables in the mix increases. A 10% demand reduction in EU4 would be equivalent to the energy equivalent of 70 standard LNG cargoes in the quarter. On the other hand, hydropower resources are healthy and European wind and solar farms are on a sustained series of increases in production, reflecting the capacity additions underway. Daily load curves change as solar hours increase and morning peak demand flattens out, reflecting the absence of industrial load. A low demand and high supply scenario tests the operation of the system just as much as the reverse.
Reporting by Paul Hickin, Stuart Elliott, Mark Tan, Surabhi Sahu, Andreas Franke, Sebastian Lewis, Emmanuel Latham