- China’s swelling oil inventories and weakening crude demand as well as an alleged 12-million-barrel buildup in US stocks (still not confirmed by the EIA as it skipped this week’s publishing schedule due to maintenance) have weakened WTI to $76 per barrel, the lowest since July.
- While prices may be up for a technical rebound, the descent of WTI has also radically shrunk backwardation in the futures curve, potentially even setting the scene for the first period of contango in many months.
- Depleted stocks at Cushing, the delivery point for the NYMEX WTI contract, have been pushing the US benchmark higher in September and October, but a recent string of inventory builds there weakened the relative standing of WTI.
- ICE Brent futures have been shrinking, too, as the six-month spread narrowed to $1.30 per barrel from $9.33 per barrel at the end of September, signaling that the market expects only limited upside to prices in the longer run.
2. Panama Canal Tightness Gets Worse and Worse
- The outlook for navigation across the Panama Canal is worsening as the worst drought in decades compelled the Latin American country to cut daily reservation slots even lower, aggravating delays.
- With the usually humid summer season seeing very little rain, Panama now enters the first El Nino dry season in years, curbing available daily slots from 31 to 18 by February, to be carried…
1. Can We Get a Little Contango Now?
- China’s swelling oil inventories and weakening crude demand as well as an alleged 12-million-barrel buildup in US stocks (still not confirmed by the EIA as it skipped this week’s publishing schedule due to maintenance) have weakened WTI to $76 per barrel, the lowest since July.
- While prices may be up for a technical rebound, the descent of WTI has also radically shrunk backwardation in the futures curve, potentially even setting the scene for the first period of contango in many months.
- Depleted stocks at Cushing, the delivery point for the NYMEX WTI contract, have been pushing the US benchmark higher in September and October, but a recent string of inventory builds there weakened the relative standing of WTI.
- ICE Brent futures have been shrinking, too, as the six-month spread narrowed to $1.30 per barrel from $9.33 per barrel at the end of September, signaling that the market expects only limited upside to prices in the longer run.
2. Panama Canal Tightness Gets Worse and Worse
- The outlook for navigation across the Panama Canal is worsening as the worst drought in decades compelled the Latin American country to cut daily reservation slots even lower, aggravating delays.
- With the usually humid summer season seeing very little rain, Panama now enters the first El Nino dry season in years, curbing available daily slots from 31 to 18 by February, to be carried out in several phases.
- The low water levels might be a particularly huge problem for large VLGC carriers as LPG ships were given a lower transit priority compared to LNG tankers and container ships, making freight even more expensive for Asian buyers of propane and butane.
- The Panama Canal Authority still holds ad hoc auctions for expedited crossings, with this week seeing a record 4 million premium paid for a Japan-bound LPG tanker that jumped the queue.
3. Chinese Refiners to Cut Runs Amidst Vanishing Profits
- Crude demand in China has been losing steam after October’s Golden Week holidays as both gasoline and diesel consumption started edging lower, leading to higher crude and product inventories.
- The so-called ‘teapots’, China’s independent refiners mostly located in Shandong province, saw refining margins turn negative by the end of October, for the first time this year, prompting them to curb throughput.
- According to China’s OilChem, utilization rates in Shandong province were as low as 57%, the weakest level since May 2022, just as evaporating product export quotas make it very difficult to export surplus production.
- Even though Beijing lifted all restrictions on international flights, jet demand has struggled to recover to pre-pandemic levels, moving within the 750-800,000 b/d range.
4. Africa Becomes the Global Hotspot for Geothermal
- Even though currently Africa only wields some 1 GW capacity of geothermal energy, approximately half of Europe’s total, the continent is set to see huge growth in that renewable segment.
- According to Rystad Energy calculations, African geothermal projects will attract more than $35 billion in investments by 2050, bringing total installed capacity to 13 GW by that point (Europe is set to see only moderate growth to 5.5 GW).
- The vast untapped resources of the East African Rift will see two countries – Kenya and Ethiopia – spearhead Africa’s geothermal bonanza, accounting for 90% of future projects.
- Africa’s geothermal giants of the future are now overwhelmingly relying on hydropower (in Ethiopia hydro generates almost 90% of all produced electricity), making them susceptible to extreme weather conditions such as droughts.
5. Diverging Strategies See Asia LNG Bulls Rewarded
- The discrepancy in Western oil majors’ Q3 results has been partly coming from different LNG trading strategies as the Asian markets have once again become premium markets for liquefied gas.
- The relatively strong results of Shell (LON:SHEL) and TotalEnergies (NYSE:TTE) stem from their structural bet on rising Asian demand, whilst BP (NYSE:BP) saw a sharp drop in profits due to its bet on strength in the Atlantic Basin.
- Shell remains the world’s largest LNG trader, shipping around 66 million tonnes in 2022, followed by TotalEnergies with 48 million tonnes, facilitating their reading of market trends to come.
- According to Kpler data, Asian buyers already imported 225 million tonnes LNG this year to date and are set to finish 2023 at 263 million tonnes, up 2% compared to last year’s readings.
6. Battery Metals Face Supply Glut After Lukewarm Demand in 2023
- Battery metals have been amongst the worst-performing commodities of 2023 so far, with surging supply battering prices of lithium, nickel, or cobalt, reversing last year’s momentous price rallies.
- Prices of lithium have plunged by more than 70% this year to date, with lithium carbonate currently selling at $21,000 per metric tonne, whilst nickel dropped by some 40% and cobalt by approximately 15%.
- China has been behind most incremental battery metal supply, overseeing a flurry of activity in low-grade lithium mining as well as heavily investing in Indonesia nickel mines, with analysts predicting a deficit in the two markets only by 2027 and 2028, respectively.
- With recessionary pressures slowing down the growth of EV sales, the only notable factor for higher prices would come from metal producers’ output cuts, as has been the case with Indonesia’s nickel mining.
7. French Nuclear Output Recovers After Years of Failures
- France’s electricity grid operator EDF foresees a much lower risk of blackouts into the winter season of 2023/2024 as the country’s nuclear fleet is boosting production amidst plants returning from maintenance.
- Overcoming structural issues with nuclear reactors’ stress corrosion cracking, France is set to restart up to 16 reactors in November-December, potentially lifting nuclear output to 50 GW by early January next year.
- Storm Ciaran disrupted nuclear generation in early November, with several production sites reporting damaged power export cables, but the impact is unlikely to last beyond this month.
- In addition to rebounding nuclear generation, France’s gas inventories are 99.7% full and hydropower seems to have recovered from the past years’ droughts, too, improving the electricity market outlook.
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