Commodity Tracker: 4 charts to watch this week

Libya’s oil fields were shut down by protestors due to high fuel costs and unemployment. French nuclear generation output helping to lift peak electricity demand. Meanwhile, Indian rice exporters struggling amid policy risks.

1. Libya’s Sharara and El-Feel oil fields shut

What’s happening? Libya’s largest oil field, Sharara, and nearby El-Feel were shut down Jan. 3 by protesters citing high fuel costs and unemployment. The fields have a combined production capacity of 370,000 b/d, roughly a third of Libyan crude output. Platts-assessed Dated Brent rose 2.1% to $77.33/b as the closures coincided with ship attacks in the Red Sea. Libya has seen production stabilize since a 2020 truce between rival governments in the country’s west and east, but Khalifa Haftar, head of the self-styled Libyan National Army, has previously blockaded oil fields to ensure a “fair” dispensation of oil revenues.

What’s next? Traders and analysts told S&P Global Commodity Insights that the closures are likely to be short-lived, since they relate to local grievances. However, if prolonged, they would impact Europe-bound exports of Libya’s light sweet crude from the Zawiya export terminal. The incident could also usher in a period of renewed instability in Libya’s vital oil sector, as the North African country’s political leaders vie for influence ahead of long-delayed elections.

2. US oil, gas rig count stumbles near 25-month low amid bearish price outlook

What’s happening? The US oil and natural gas rig count continued to sputter through late December, hovering just above a two-year low as E&Ps across the Lower 48 states dialed back drilling activity amid a souring outlook for commodity prices. At the close of 2023, the US drilling fleet estimated at 677 has contracted by nearly 24% in the past 12 months with benchmark WTI crude now trading in the low-$70/b range and Henry Hub gas trending in the mid-$2s/MMBtu – well below respective 2023 highs.

What’s next? Many E&Ps’ year-ahead capital budgets to be announced in the coming months are likely to reflect a conservative oil and gas price outlook for 2024, according to market analysts. Operators are expected to continue to maintain capital discipline, preserve free cash flow and prioritize shareholder returns. With a bearish outlook guiding year-ahead capital spending for many E&Ps, it is likely that US drilling activity will remain stable at best, with further consolidation still possible in the months ahead.

3. Robust French nuclear helps NW Europe weather January cold snap

What’s happening? French nuclear generation, which fell to record lows over the past two winters, has recovered with output set to hit 50 GW mid-January for the first time in three years. The improvement has helped to offset the bullish price impact from a cold snap forecast to lift peak electricity demand in France above 80 GW for the first time this winter. The nuclear recovery, alongside record wind and improved hydro output, pushed French power exports to an all-time high above 20 GW in early January.

What’s next? Analysts at S&P Global forecast French nuclear to average around 48 GW in January, the highest monthly average since January 2021. Ongoing maintenance delays and an early start to the 2024 maintenance season are set to cap any further upside potential later this month. On the curve, winter risk premiums were largely priced out in late 2023 on comfortable gas storage levels. French year-ahead power contracts are now trading close to pre-crisis levels around Eur85/MWh, with only Spain of neighboring markets seen lower on an annualized basis.

4. Indian rice exporters brace for challenging year amid high prices

What’s happening? In 2023, India banned the export of non-Basmati white rice, imposed 20% export duty on parboiled rice and a minimum export price of $950/mt on Basmati rice, in response to increasing prices in the local market and surging exports. Despite the trade restrictions, local rice prices remained firm even in the middle of the harvesting season in 2023.

What’s next? The fall in rice production in marketing year 2023-24(October-September) kharif season due to dry weather conditions caused by El Nino weather phenomenon and a slow start to the rabi sowing have ruled out improvement in supply conditions in the near term. Trade sources said that prices are likely to last at least until the first half of 2024. They do not see a sharp fall in prices at least till the next kharif harvest season due to the high procurement prices promised by a few state governments and strong demand from the states in southern India. It is also unlikely that the government would ease the restrictions before the general election that is expected to take place in April-May.
Source: Platts