Commodity Tracker: 5 charts to watch this week

Oil prices are in focus this week, as the market weighs economic data and the possible outcomes of the next OPEC+ ministerial meeting later this month. OPEC said oil market fundamentals remain strong, with healthy demand ahead. An easing of restrictions on Russian gasoline and diesel exports as well as US sanctions on Myanmar’s oil and gas are also set to impact trade flows.

1. Oil price drops ahead of OPEC+ meeting Nov. 26
What’s happening?
Oil prices have fallen since the start of November, in response to weak economic data and an easing of fears about the supply impact of the Israel-Hamas war. Despite OPEC continuing to predict a major supply shortfall, the two largest OPEC+ producers Saudi Arabia and Russia are maintaining their policy of voluntary production cuts up to the end of 2023. OPEC+ production policy, sanctions and geopolitical risks have had a major impact on prices over the last year.

What’s next?
The price slump comes ahead of an OPEC+ ministerial meeting scheduled for Nov. 26, when officials will discuss market conditions and production quotas. The group’s output grew 180,000 b/d on month in October to 42.71 million b/d and is now at a five-year high, according to the latest Platts survey by S&P Global Commodity Insights, with Iraq, Iran and Angola posting significant increases. OPEC+ will target a production policy that boosts prices and allows it to maintain market share, amid ongoing uncertainty about the global economy and geopolitical risks. “Supply restraint by OPEC+ is key to supporting oil prices above $80/b through 2024 and above $70/b in 2025,” said S&P Global Commodity Insights.

2. Diesel, gasoline markets poised for relaxed Russian export bans
What’s happening?
An end to the Russian ban on diesel and gasoline exports could be in sight after Energy Minister Nikolay Shulginov suggested some measures could soon be relaxed. M1 ICE gasoil futures ended the week to Nov. 9 down 11% as the oil complex trended lower and European supplies showed signs of uplift, but a Russian supply injection could add to the downside.

What’s next?
Traders anticipate that the Kremlin could scrap all remaining oil product export restrictions by the end of this week, despite initial media reports that only lower octane gasoline grades would be targeted. A full rollback of restrictions would allow seaborne Russian diesel to return to the market. That could add over 100,000 barrels of supply, on top of pipeline flows, which were restored after a policy reversal Oct 6. Russian diesel exports via pipeline totaled 431,000 barrels in October, according to S&P Global Commodities at Sea data. Higher export volumes could provide some price relief to global diesel cracks, though the impact is expected to be limited as the majority of product has already returned to the market. For Europe, stronger flows into South America and Africa from Russia could free up Middle Eastern supply, improving flows to Amsterdam-Rotterdam-Antwerp ports after several weeks of an unworkable arbitrage.

3. US sanctions on Myanmar pose risks to Thailand’s gas supply
What’s happening?
The US Department of the Treasury’s Office of Foreign Assets Control published Oct. 31 a new directive that prohibits US persons from providing certain financial services to state-owned Myanma Oil and Gas Enterprise. The sanctions are aimed at cutting revenue flows to the military regime as they prevent importers of Myanmar’s oil and gas — mainly Thailand and China — from making payments in US dollars through conventional banking channels linked to the US financial system, according to legal experts. The sanctions also threaten to choke future oil and gas upstream developments in Myanmar. Around 66% of Myanmar’s total gas production is exported. In 2022, pipeline gas exports were split between China (35%) and Thailand at (65%).

What’s next?
The sanctions have curbed Myanmar’s ability to ramp up its oil and gas supply any further, and are likely to force out any remaining companies who have not fully withdrawn following the military coup in 2021. Thailand and China may not immediately cut short-term imports but are likely to seek alternative payment mechanisms, even though the risk of even tighter sanctions remains. Before the 2021 military coup, international oil and gas companies in Myanmar included Thailand’s PTTEP, India’s ONGC and GAIL, Japanese consortiums, South Korea’s POSCO and Kogas, TotalEnergies, Woodside Energy, Chevron and Petronas. Most of them have gradually exited in recent months. In the longer term, the sanctions could prompt a gas strategy that relies more on LNG imports and domestic production in Thailand, and a shift to alternative fuel sources in southern China to replace pipeline gas when Myanmar’s production peaks and starts to decline.

4. Recycled PET gets counter-seasonal boost from high virgin prices
What’s happening?
European recycled PET clear flake spot prices have climbed slightly in recent days, bucking the typical seasonal trend. Demand for recycled PET normally climbs to its highest point in spring and early summer, as manufacturers look to stock up on material, and declines moving into winter as demand for bottled drinks wanes. But this winter, higher prices for virgin PET due to surging feedstocks mean recycled PET clear flakes look relatively economical, supporting some counter-seasonal demand.

What’s next?
The market outlook for recycled PET flakes remains relatively positive, with virgin PET look set to remain at a relatively elevated level. Some market participants have also suggested a potential uptick in appetite for flake moving into the holidays, as end consumers look to stock up on beverages ahead of the holiday period.

5. S&P Global Commodity Insights’ Food & Beverage Price Index dips for third consecutive month
What’s happening?
S&P Global’s Food & Beverage Price Index decreased by 0.3% month-on-month in October to 111.1 points. The constituent Softs sub-index dip was notably the first since November 2022. While sugar prices remain bullish on supply concerns, cocoa prices eased as traders withdrew from the market and coffee prices softened on improving supplies. Meanwhile, the Dairy sub-index increased for the second consecutive month following an extended period of decline amid farmers curbing supplies and seasonal buying.

What’s next?
The all-important Grains and Feeds sub-index has been in a narrow range of 96.1-96.9 points since June as bullish rice prices have been offset by generally weak corn and wheat markets. However, if the El Nino weather event continues into 2024, this is expected to constrain grain supplies as key rice producers in Southeast Asia and India, in addition to wheat heavyweights Australia and Canada that are likely to experience dry weather.
Source: Platts