The impact of Russia’s invasion of Ukraine remains a key driver in commodity markets this week, with global oil flows topping our editors’ list. Japan’s nuclear output and US corn crop are also in the spotlight, reports SP Global.
1. Russian seaborne oil exports retreat from three-year highs…
After months of defying expectations to the upside, Russia’s seaborne crude exports have fallen back to pre-Ukraine war levels. The impact of western sanctions on Moscow’s oil trade flows is more profound, however, with a major shift in exports away from Europe and the US towards Asia. India and China are now firmly Russia’s biggest oil customers as their refiners snap up discounted Russian crude supplies.
Russia’s key export grade Urals has been trading at significant discounts to other crudes since the country invaded Ukraine Feb. 24. Platts assessed Urals at $70.21/b and Dated Brent at $110.22/b on July 22, S&P Global Commodity Insights data showed.
Russia’s oil export and production are expected to fall further in the coming months as EU member states sideline Russian crude and oil products to comply with sanctions. The EU is also expected to increasingly replace Russian oil imports with alternative supplies from producers such as the US, Norway, Egypt, Iraq, Brazil, and Angola. Platts Analytics forecast a loss of up to 2 million b/d of Russian oil supply will materialize by year-end due to the impact of European sanctions and other curbs.
2. … while Europe’s polyethylene imports from Russia rise sans sanctions
EU27 polyethylene imports from Russia increased to their highest volumes since 2020 following Russia’s February invasion of Ukraine, while May imports are above the 2021 average, according to the latest data from Eurostat.
This occurred as Russian sellers offered material at competitive prices amid some market participants shunning Russian volumes and the financial measures put in place to limit interactions with the Russian financial system. Conversely, EU27 exports of polyethylene to Russia from March through May declined to under half of their 2021 average as financial disruption to the Russian financial system caused challenges selling material to the country.
Polyethylene is yet to be included on any EU sanctions regime, but market players will continue to keep a close eye on fresh sanction packages. Weak European downstream demand and logistical challenges look set to limit imports through July and August, though market players will continue to watch for competitive Russian offers from sellers with stocked warehouses. Eurostat data covering June numbers will be released Aug. 16.
3. Japan’s nuclear output to increase consecutively for next six quarters
Power generation from nuclear power plants reached only 4 aGW in Q2 2022, and at one point only three out of ten reactors were operating. However, the outlook is positive as several units will return from maintenance over the next few months, and three new restarts will take place in 2023 with the return of Takahama No. 1 & No. 2, and Shimane No. 2.
With all the capacity coming back online, nuclear power generation should show a steady increase and reach 11 aGW for Q4 2023. As the nuclear output increases, Japan’s thermal gap will decline. Coal-fired power generation is expected to hold up well, and gas-fired power generation should see most decline. The rise of nuclear power in Japan will free up some LNG for the tight international market.
4. US corn pollination behind five-year average
The pollination pace of the US corn crop for marketing year 2022-23 was reported to be slower than average as of July 17. At 37% of the national level, it is behind the five-year average of 48% for the period. The US corn planting for MY 2022-23 got delayed due to excessive rains in parts of the country and, in a turn of weather events, dryness is seen stressing the current crop development. As crops in major producing regions in the US enter pollination, weather in the US is pivotal right now to determine US corn yields and output.
Weather forecasts suggest dryness in parts of the US to continue for the next few weeks. While this could bring US corn yields below the current estimates, any dramatic damage to US corn yields is seen unlikely at this point. Corn production in the US in MY 2022-23 is already forecast to decline year on year due to a smaller acreage estimated by the US Department of Agriculture.
The USDA currently sees the US corn yield at 177 bushels/acre and production at 14.5 billion bushels, it said in its July World Agriculture Supply and Demand Estimate. US corn production estimates are being keenly watched this year as disruptions in Ukraine, another major supplier of corn, keep global corn supplies limited.
5. European gas stocks in focus ahead of winter
European gas storage stocks are currently around 60% full, with injections required to average 180 mcm/d for the remainder of the injection season versus 330 mcm/d seen since April so far to achieve the 80% fullness target set out by the EU. Net injections into storage plummeted during Nord Stream maintenance July 11-21, when Russian flows to NWE ceased altogether, with Germany even seeing a day of net withdrawals in mid-July.
Whether or not Europe will be able to meet its storage mandates will foremost depend on the stability of Nord Stream flows over the next few months. The market awaits Nord Stream turbine, which usually operates at the Portovaya compressor station, to be returned to Russia. The turbine was under maintenance in Canada and has been flown to Germany July 18 where it now awaits documentation from the Russian side.
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Source: SP Global