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Commodity Tracker: 6 charts to watch this week

1. US soybean stocks pile up as Chinese export avenue cut off

What’s happening? At the start of the new US marketing year, farmers are sitting on a huge pile of soybean stocks, estimated at 29.1 million mt, up 144% from 2017-18 levels. The escalated US-China trade tensions have nearly halted bean exports to China, which accounted for over 48% of US sales in 2017-18. Prices have simultaneously fallen for US soybeans, with average prices for 2018-19 seen at $8.5 per bushel, down 9% from a year ago. Alternative markets for US-origin beans look very small compared with China’s demand. Buyers from the EU and six other destinations accounted for 25% of the total US soy exports in 2017-18.

US soybean exports and China demand 2015-2020

What’s next? Markets will be keenly watching the upcoming US-China trade talks in September, with producers hoping to book fresh sales to China. Chinese buyers may also want a positive outcome from the Sino-US discussions, as they fear their primary supplier, Brazil, may run out of stocks by the end of 2019.

2. EU CO2 prices slump Eur5/mt from 13-year high

EUA nearest-December contract price 2018-2019

What’s happening? EU carbon dioxide allowance prices have slumped almost Eur5/mt in August from a 13-year high of nearly Eur30/mt in July. The drop is linked to the risk of a no-deal Brexit; worries over the macroeconomic outlook in Europe; and falling year-ahead natural gas prices in Europe, which reduce the implied carbon price needed for coal-to-gas fuel switching on the power forward curve.

What’s next? With carbon prices appearing to find good support at lower levels of around Eur25/mt, carbon market participants will be watching closely for signs that the new-found stability can provide a floor for prices. The UK will drop out of the EU ETS on October 31 by default, unless a deal is reached with the EU. Brexit is therefore likely to continue to drive price volatility as traders begin to return from their summer vacations.

3. US East Coast states seek over 19 GW of offshore wind capacity over next 15 years

US offshore wind forecast to 2030 - S&P Global Platts Analytics

What’s happening? Legislation, regulation and, now, approved power purchase agreements are encouraging the development of significant volumes of incremental US offshore wind power generation capacity, though only 30 MW of offshore wind resources are currently operating in the country.

What’s next? States along the US East Coast are seeking to procure more than 19,300 MW of offshore wind capacity through 2035, according to an analysis from S&P Global Market Intelligence and S&P Global Platts.

4. OPEC output cuts tighten crude stocks, but oil prices remain supported

US crude oil stocks tighten in summer 2019

What’s happening? Oil inventories in OECD countries, including the US, have been declining as OPEC’s crude output cuts have tightened the market and refinery runs have strengthened. Saudi Arabia in particular has slashed its exports to the US, the most visible and transparent market, in hopes of turning bearish sentiment around. Despite the inventory draws, however, oil prices remain captive to global economic concerns and the escalating trade war between the US and China, which has dampened demand growth forecasts.

What’s next? A key OPEC/non-OPEC monitoring committee co-chaired by Saudi Arabia and Russia will meet September 12 in Abu Dhabi, where discussions are expected to focus on whether the producer bloc will take additional actions to boost prices.

5. EU gas storage brimming one month before withdrawal season

EU natural gas storage sites near capacity at end of summer 2019

What’s happening? Gas storage sites across Europe are almost filled to capacity, with just a limited volume left to be injected before facilities run out of room in most EU countries. Storage players will want to retain the optionality to inject right up to start of the withdrawal season, so storages may not be 100% filled. But the continent’s storage sites have never been so full before.

What’s next? With withdrawals normally not starting in earnest until October, the lack of injection demand could have a bearish impact on prices. The expectation of a pick-up in LNG supplies to Europe and no reason to rule out strong pipeline supplies from Norway and Russia next month point to a continued oversupply and low prices.

6. Gold’s relentless rise continues; Brexit leads pound lower

Gold price and sterling

What’s happening? Gold, the go-to safe haven in times of economic stress, is powering higher as the UK pound takes a battering. The main reason for sterling’s downward slide is the constant uncertainty linked to Brexit.

What’s next? The pound is at the mercy of UK politics. Following the Prime Minister’s most recent move to suspend parliament after the summer break, more uncertainty is likely. Meanwhile, perceived risks to the global economy and the ongoing tit-for-tat in the US-China trade relationship will remain key drivers for gold.
Source: Platts

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