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Commodity Tracker: 5 charts to watch this week

Our editors and analysts are keeping an eye on current oil prices and supply factors, as well as the global spare capacity over the next few months. Methanol and tin prices are also in focus, while container premiums are hitting the ceiling.

1. Geopolitical supply risks return to the fore in oil markets

What’s happening? Recent oil supply disruptions include pipeline shutdowns in Ecuador affecting 270,000 b/d in December, the shutdown of 350,000 b/d from Western Libyan oilfields for three weeks through Jan. 10, and public unrest in Kazakhstan reducing January crude supply by an estimated 50,000 b/d. In addition, a deadly Jan. 16 drone attack in the UAE raises alarm in one of the only remaining sources of notable spare capacity, while odds for an Iran nuclear deal are diminishing and a potential Russian military incursion into Ukraine keeps markets on edge and risks Western energy sanctions.

What’s next? Oil markets currently possess sufficient spare capacity to offset sporadic outages. However, this OPEC+ buffer will fall to 1.8 million b/d by June, just as oil demand is set to grow by 3.5 million b/d in H2 over H1. Additional oil supply could potentially come from an Iran nuclear deal, although these prospects look uncertain at best, while shale activity is restrained by capital discipline relative to prior cycles. In the event that disruptions become an increased reality, then higher prices and demand destruction become the necessary balancing mechanism.

2. Biden facing pump price pressures – again

What’s happening? Oil and other energy prices are the largest driver of US inflation, which is testing President Joe Biden ahead of the tightly contested November mid-term elections that will determine control of Congress.

What’s next? Biden said Jan. 19 he would “continue to work on trying to increase oil supplies” and acknowledged the burden that fuel prices are having on US drivers. Analysts expect the administration to consider the usual policies and rhetoric that get brought out when domestic fuel prices rise, including urging US and OPEC drillers to pump more, tapping the Strategic Petroleum Reserve again, promoting anti-OPEC legislation in Congress, pushing the Federal Trade Commission to keep probing price gouging, and potentially bringing back talk of US crude export restrictions.

3. In Europe, demand for gasoline blending drives methanol prices

What’s happening? The ongoing increase in prices for gasoline and gasoline components, such as MTBE, aromatics and ethanol makes methanol a suitable blendstock for some gasoline grades like those for West Africa or Libya. Consequently, spot methanol buying from gasoline blenders in Amsterdam-Rotterdam-Antwerp hub or in the Baltics resulted an uptrend in methanol prices, despite the firm methanol import activity, mostly from the US.

What’s next? With methanol production cost staying on the high side, due to the high feedstock (natural gas) and energy prices, source said that they expect the high methanol prices to persist while the gasoline blending outlet remains open. This also means that Europe remains an attractive destination for methanol trade flows from overseas and potentially increase further the arbitrage opportunities.

4. Undersupplied tin market to potentially see more upside in prices after all-time high

What’s happening? The tin price has maintained its upward momentum, hitting above $43,000/mt for the first time ever on tight inventories in a persistently undersupplied market. Tin is one of the so-called metals important for future technologies, or MIFTs, that is heavily used in electronics but its supply has been dwindling for more than two decades. Prices rose three-fold in the past two years. Tin prices closed at $13,180/mt in March 2020, at the start of the pandemic. The London Metal Exchange three-month spot tin price was trading at $43,650/mt as of 1236 GMT Jan. 21.

What’s next? Market sources have described the tin market as being “chronically undersupplied,” with the supply shortage being aggravated by continuous logistical issues. The tin market is minor in size at around 300,000 mt/year. A market analyst said Myanmar, one of the key suppliers to China, has long been experiencing issues with the depletion of its reserves. According to industry sources, there were very few new projects due for commissioning globally that could provide respite in terms of supply. The International Tin Association said due to positive growth forecasts for 5G technologies as well as “new markets for interconnection in electric vehicles and other climate change-related infrastructures the longer-term outlook for solder usage remains very positive.”

5. Container prices hit ceiling amid uncertainties

What’s happening? Container market rates remain elevated despite the anticipation of a slowdown during the upcoming Lunar New Year holiday. Rising COVID-19 cases aggravated concerns of supply chain disruptions. For the trans-Pacific, one of the most-active trade lanes, prices are currently at the record levels, with bookings from China to US ranging between $16,000-$21,000/FEU.

What’s next? While the exporters are bracing up for an extended lull in the market activity after the holidays, equipment shortages and booking rollovers may still be the norm due to port congestion, trucking issues, and curtailed workforce. Vessel cancellations continue to be a major pain point for shippers, together with a sharp increase in the transit time, especially on the ex-China routes. Despite weakening demand due to the saturated short-term bookings, industry participants expect trade volumes to remain high at least through H1 due to firm orders from electronics and pharmaceutical sector.
Source: Platts

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