Oil markets are flashing signs of renewed strength amid tightening supplies, while record heat around the world is impacting everything from crops and energy prices to the availability of water. Here are five charts to consider in global commodity markets this week.
(Bloomberg) — Oil markets are flashing signs of renewed strength amid tightening supplies, while record heat around the world is impacting everything from crops and energy prices to the availability of water. Here are five charts to consider in global commodity markets this week.
Oil
After OPEC+ kingpins Saudi Arabia and Russia pledged measures to limit oil flows into August, traders will be looking for signs buyers are snapping up barrels this week. Nearby time spreads for both West Texas Intermediate and Brent futures — which help gauge tightness in the market — have surged in recent sessions, even flipping into a bullish backwardation pattern. With Saudi Arabia now lifting prices for its barrels, that’s set to boost demand for oil linked to the two benchmarks. If that does happen, the trend in time spreads is likely to continue. Other things to watch this week for clues on the trajectory for supply and demand: monthly reports from the Organization of Petroleum Exporting Countries and the International Energy Agency, both due on Thursday.
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Agriculture
Traders should expect more volatility in the soybean and corn spread following a shocker of a US Department of Agriculture acreage report last month. While it’s now known how much farmers planted — much less soybeans (the least since 2020) and a lot more corn (the most since 2013) — yields are a question mark. That has caused the gap between the two futures prices to widen. Erratic weather in the US and ongoing uncertainty over the deal that allows Ukraine to safely ship grain from Black Sea ports could contribute to further price instability. The USDA’s World Agricultural Supply & Demand Estimates on Wednesday will provide additional insight into production forecasts, and possibly an update on crop yields.
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Shipping
Rates for smaller oil tankers known as Aframaxes are trading at a narrower premium to those for Very Large Crude Carriers — or VLCCs — as demand for Russia’s crude wanes. More Aframax ships than VLCCs joined the dark fleet to carry Russian crude after Moscow’s invasion of Ukraine in February 2022, leaving fewer of these vessels available for the rest of the world and pushing up freight rates. Now, both Saudi Arabia and Russia have pledged to extend crude supply cuts into August. That comes as Aframax time-charter equivalent rates are trading at a premium of roughly $10,500 per day above VLCC freight, down from a record $96,000 per day in April last year, according to the Baltic Exchange.
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Climate
Earth is scorching hot with temperatures smashing records, threatening fragile ecosystems and putting millions of people at risk. The average worldwide temperature hit 17C (63F) for the first time ever last week. Climate change associated with greenhouse gas emissions is a major factor in this weather trend, which is likely to impact everything from natural gas prices to sugar. Cooling demand is set to increase throughout the Northern Hemisphere summer while drought conditions persist, as well as the uncertainty brought by El Niño.
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LNG
Long-term contracts for liquefied natural gas supplies from project developers in the US and Mexico have ramped up in the first half of 2023 to the tune of almost 16 million tons per year. That compares with 25.7 million tons per year for the same period of 2022. Most of the volume this year was signed with buyers from China, Japan or South Korea. NextDecade Corp. is expected to make a final investment decision on its Rio Grande LNG export project in the coming weeks, which will launch construction of the south Texas plant, forecast to start production by 2027. Suppliers, executives and investors will convene in Vancouver this week for the four-day LNG 2023 conference to discuss the state of the industry, energy security, dealmaking and supply-chain risks, among other things.
–With assistance from Ann Koh, Alex Longley, Michael Hirtzer, Eamon Akil Farhat and Ruth Liao.
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