This Week’s Commodity Tracker: 4 Charts to Keep an Eye On

27

Our markets will assess the OPEC+ alliance’s decision to increase output quotas in July and August, as well as the EU’s six-month phaseout of Russian oil, this week. Meanwhile, economists predict China’s refinery runs to improve if restrictions in important areas are lifted as reported by S&P Global.

1. OPEC+ to raise output quotas to 648,000 b/d in July, August

What’s happening? 

On June 2, the OPEC+ alliance decided to speed up its production increases during the summer, increasing quotas to 648,000 barrels per day in July and another 648,000 barrels per day in August. Though many are unable to increase their output due to technical difficulties or internal instability, these volumes are around 50% larger than the normal 432,000 b/d monthly rises that it was currently undertaking.

What’s next? 

The OPEC+ agreement is set to expire at the end of December, but all eyes will be on the group as it considers whether and how to extend their market-management accord, especially as the Russia-Ukraine conflict shows no signs of ending and major countries grapple with record inflation.

2. Russian shut-ins to hit more than 2 million b/d of crude by December

What’s happening? 

The EU will announce a six-month phaseout of 2.3 million barrels per day of Russian crude imports, as well as 1.2 million barrels per day of product imports over an eight-month period, excluding exemptions for 300,000 barrels per day of pipeline crude, flows to Hungary and other logistically isolated buyers. The prohibitions were previously assumed in the S&P Global Commodity Insights analytics team’s reference case, which anticipates Russian production shut-ins to rise from 850,000 barrels per day in May to 2 million barrels per day by December.

What’s next? 

EU and UK sanctions will affect 1.9 million b/d of pre-conflict seaborne crude exports, as well as 500,000 b/d of Druzhba pipeline shipments, by the end of 2022. Russian output has already fallen by 850,000 b/d since February, aided by a complete US oil import restriction and refinery shutdowns. As a result, S&P Global’s disruption forecast implies that nearly half of the banned crude exports to Europe will be rerouted to Asia and other parts of the world, which is already happening. Japan’s and possibly other buyers’ phaseouts would have to be compensated for. Potential insurance restrictions, secondary US sanctions, difficulty to reroute product exports, and unilateral Russian curtailments are all risks to S&P Global’s supply outlook.

3. China poised to see improved refinery levels in the coming months

What’s happening? 

Refiners that had derated due to a combination of demand destruction and lower product export quotas may benefit from a resurgence in domestic oil consumption following the relaxation of lockdown measures in China’s big cities. Despite private refiners leaving maintenance season, runs are expected to have decreased further in May as state-owned refineries deal with heavy inventory pressure due to stock builds in prior months.

What’s next? 

With returning demand and the projected release of fresh product export quotas, China’s refinery runs are expected to improve in June and H2. The speed with which Chinese refiners recover is highly dependent on Beijing’s assistance in boosting domestic oil demand as well as product exports. Between June and December, S&P Global Platts Analytics expects crude runs to increase to a monthly average of 14.4 million b/d.

4. EU shipping sector assesses the impact of inclusion to the carbon market

What’s happening? 

In May, the European Parliament’s Environmental Committee approved new suggestions about shipping’s future inclusion in the region’s carbon market. One of the options is to postpone the sector’s inclusion in the EU Emissions Trading Scheme until 2024 but to require that all emissions from intra-EU journeys be covered from the start, rather than the prior plan of a phase-in period between 2023 and 2026. The ‘polluter-pays principle,’ which places responsibility for carbon emissions on shipowners and commercial operators, is also included in an amendment to the draught proposal report.

What’s next? 

Early this month, the European Parliament is likely to vote on the recommendations. The European Parliament, the Council of the Member States, and the European Commission are scheduled to meet in September. While the maritime industry must now adjust to the new timeframe, there are still major issues regarding how the regulations should be understood and implemented. It’s also unclear how shipowners will rethink and reconfigure their fleets.

 

Did you subscribe to our newsletter?

It’s free! Click here to subscribe!

Source: S&P Global

LEAVE A REPLY

This site uses Akismet to reduce spam. Learn how your comment data is processed.