- Deliveries of US crude to Asia are set to reach an all-time high this month, soaring to 1.8 million b/d as the relative discount of WTI to other global benchmarks makes American barrels increasingly profitable.
- As recently as a couple of days ago WTI still traded at a 9 per barrel discount to Brent and a 6 per barrel discount to the Asian benchmark Dubai, with South Korea, China, and India all joining the buying spree.
- South Korea will remain the biggest buyer of US crude regionally, importing a record 620,000 b/d in November, while China will receive the highest volume since December 2020 (approximately 450,000 b/d).
- Chinese buying is particularly noteworthy as it comes after the huge 15-million-ton product export quota allocated in September, driving refinery runs much higher since.
2. China Woes Sink Bright Prospects for Iron Ore
- Iron ore has become one of the poorest performing commodities this year, writes Bloomberg, with Asian futures falling for seven straight months already, the worst run on record.
- Still overly dependent on Chinese demand, iron ore futures have dropped to almost $80 per metric ton, a third of what they were at their May 2022 peak.
- China’s Communist Party congress failed to introduce large-scale stimulus measures for the country’s real estate, which combined with anti-pollution curbs and government-mandated steel output…
1. A Flotilla of US Oil Is Moving Toward Asia
- Deliveries of US crude to Asia are set to reach an all-time high this month, soaring to 1.8 million b/d as the relative discount of WTI to other global benchmarks makes American barrels increasingly profitable.
- As recently as a couple of days ago WTI still traded at a 9 per barrel discount to Brent and a 6 per barrel discount to the Asian benchmark Dubai, with South Korea, China, and India all joining the buying spree.
- South Korea will remain the biggest buyer of US crude regionally, importing a record 620,000 b/d in November, while China will receive the highest volume since December 2020 (approximately 450,000 b/d).
- Chinese buying is particularly noteworthy as it comes after the huge 15-million-ton product export quota allocated in September, driving refinery runs much higher since.
2. China Woes Sink Bright Prospects for Iron Ore
- Iron ore has become one of the poorest performing commodities this year, writes Bloomberg, with Asian futures falling for seven straight months already, the worst run on record.
- Still overly dependent on Chinese demand, iron ore futures have dropped to almost $80 per metric ton, a third of what they were at their May 2022 peak.
- China’s Communist Party congress failed to introduce large-scale stimulus measures for the country’s real estate, which combined with anti-pollution curbs and government-mandated steel output quotas makes up for a really bleak outlook.
- Chinese steel mills have been loss-making throughout Q3, the worst quarter in terms of earnings since at least 2018, hitting iron ore hard as China accounts for 70% of global iron ore imports.
3. Chinese Power Demand Set to Soar in Q4
- Chinese power demand has trended 5% higher year-on-year so far, driven by a massive heatwave this summer as well as due to lower generation levels in the autumn of 2021 amidst rolling blackouts.
- The China Electricity Council expects Q4 electricity demand to increase 4-5% year-on-year amidst reviving economic activity, forcing Beijing to extend its coal price cap well into 2023.
- The big winter challenge will be in meeting demand in the southern regions of China as an expected drought is set to lower hydropower generation capabilities, implying coal burning has to be ramped up.
- Interestingly, thermal generation has barely moved up this year in relative terms (up 0.3% year-on-year) whilst most of the incremental power came from wind and solar farms.
4. COP27 to See Country-Specific Methane Pledges
- A third of the almost 120 countries that pledged last year to cut methane emissions, having 80 times the warming power of CO2, will present their plans at the upcoming COP27 summit next week.
- According to media reports, the countries that led the Global Methane Pledge previously, namely the US and EU nations, will be the ones specifying their methane-curbing plans.
- It remains to be seen whether any one of the top methane emitters – China, India, or Brazil – will be presenting anything for the summit, especially since they are not signatories to the pledge.
- Agriculture in Asia-Pacific is the single largest source of methane emissions, with high levels of coal burning (74% of energy emissions in the same region) furthering Asia’s methane problem.
5. Europe Works to Decouple Power and Gas Prices
- The European Union is working to decouple power prices from the continent’s main gas pricing benchmark – the Dutch TTF – however it is still yet to agree on which option is the most suitable to achieve that.
- Currently, it is the most expensive form of electricity generation that sets European power prices – gas – meaning even low-cost power plants like wind farms do not provide any price relief for the EU.
- Whilst an outright price cap would underpin consumption, limiting the price of gas used in power generation the Iberian way might incentivize electricity exports, meaning all options have their respective downsides.
- With prices on the decline since early September amidst above-average temperatures and robust wind generation, TTF prices are at €125/MWh currently, awaiting the first bouts of cold.
- Macroeconomic gloom and recession fears are weighing heavily on palladium and platinum prices, both used mainly in vehicle exhaust systems and feeling the pinch of lower demand.
- With platinum markets being in a slight surplus this year, the palladium-platinum spread is still unprecedentedly wide at some $1,000/mt, with platinum trading around $950/mt.
- Palladium prices have been buoyed by the Russia-Ukraine war, as 45% of global palladium reserves are in Russia and exports now have to go through third parties.
- Analysts believe there is some pricing upside in palladium prices, currently around 1,900/mt, as impending fossil-fuel car bans will force carmakers to speed up the production of hybrids instead of EVs.
7. The Coal Romance is Difficult to Shake Off
- Only a little less than a year ago, China pledged not to build any new coal power capacities overseas, but its build-up of coal-powered generation capacity at home continues.
- It is expected that China will add a total of 270 GW coal-powered capacity in the five years to 2025 – more than any other nation and more than all of the US’ current coal power fleet.
- Learning from the blackout fears of H2 2021 when coal effectively saved China from an energy collapse, China now accounts for 73% of the global pipeline of projects under construction.
- According to experts, a lot of new coal capacity will be built next to hydropower plants as well as solar and wind farms, acting as guarantees of reliable electricity supply in terms of weak intermittent generation.
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