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Insight Weekly Market Report Market report - 02.07.2024

Market Report Week 27 - 02.07.2024

Other insights Jul. 02, 2024
Market Report Week 27 - 02.07.2024 Download the report here

Summary

This week, the ECB and US Federal Reserve will release meeting notes that offer insights into economic outlooks and potential interest rate decisions. Mexico's manufacturing PMI is expected to show slight growth, while Brazil's industrial production likely slowed from over 8% in April to just above 3% in May. Germany's industrial production is projected to rise slightly, while France's is expected to decline. Argentina’s industrial production continues to fall sharply. US factory orders are expected to decrease, whereas German orders are expected to increase. The US trade deficit remains large but stable, and Germany's trade surplus is projected at €22 billion for May. France's cumulative budget deficit through May is high at €115 billion, attracting scrutiny from the European Commission. The UK will hold a general election on Thursday, and France will have a second-round election on Sunday.

In the oil market, the Baker Hughes oil rig count fell by six to 476. WTI's weekly average price increased slightly to $81.3, and natural gas prices fell to $2.7/mmbtu. Saudi Aramco is selling 0.64% of its capital for over SAR 42 billion (about $11 billion). Despite high production, Aramco has increased its reserves annually and maintains a maximum sustainable capacity of 12 mb/d, with new fields expected to add capacity by 2026. Aramco's lifting costs are among the lowest globally, and it transferred $200 billion to the state and shareholders in 2023. Oil now accounts for 36% of Saudi Arabia's GDP, down from over 50% in the 1970s, reflecting increased economic diversification.

The Dutch Central Planning Bureau reported a slight increase in world trade for April, with trade rising over 1.5% from March levels and 1.8% year-on-year. Import and export trends varied, with notable increases in US and UK imports and advanced Asian exports. World industrial production also saw moderate growth. Clarksons data confirmed these trends, noting a rise in seaborne trade for April, though a slowdown was observed in May.

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Oil

- Saudi Aramco is initiating a share offering, selling 0.64% of its capital for SAR 42 billion ($11 billion), supported by an accompanying offering memorandum.

- Aramco, recognized as the world's largest oil company, manages Ghawar (onshore) and Safanyiah (offshore), holding substantial crude oil reserves.

- Despite challenges like the Ghawar field's depletion, Aramco reports an annual reserve replacement rate exceeding 100%.

- The company operates under a state-imposed maximum sustainable capacity of 12 million barrels per day (mb/d), managing production across new and existing fields like Marjan, Berri, and Zuluf.

 

- Aramco's strategic financial moves include reduced capital expenditure, emphasizing low lifting costs of $3.2 per barrel and significant dividends, reflecting its pivotal role in Saudi Arabia's economy, where the oil sector now contributes 36% of GDP.

 

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The Economy

- The Dutch Central Planning Bureau's April World Trade Monitor reported a modest increase of over 1.5% in global trade compared to March, with previous months' figures revised downward.

- Year-on-year, global trade showed a growth rate of approximately 1.8%, indicating resilience despite varying regional trends.

- Imports declined year-on-year for the EU and Japan, although most countries experienced growth compared to March levels. The Eurozone saw a 2% increase month-on-month but a 3.8% decrease annually.

- On the export side, global shipments rose by 1.8% from March, with notable increases in advanced economies except for the UK and Japan. China and emerging Asia, excluding China, also saw substantial export growth.

- World industrial production increased by 0.6% from March and 1.6% year-on-year, with varying regional performances such as declines in the Eurozone, Japan, and parts of Africa/Middle East, contrasting with growth in advanced Asian countries and China.

 

- Clarksons' trade data corroborated the CPB's April findings, noting significant growth of 5.5% in April seaborne trade, outpacing overall trade growth by three times. However, May saw a slowdown to a 0.9% increase year-on-year in seaborne trade, hinting at a broader slowdown in global trade for that month.

Vessel rates

  • New York

    Status quo since last week. A new MGO jobber has joined the slate of suppliers in NYH.

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  • Fujairah

    VLSFO avails are slowly tightening with majority suppliers quoting for enquiries 1 week out. Few still have prompt slots available but with little to no difference on buying levels/premiums. HSFO is a bit tight with steady demand and most suppliers booked out for the next 1 week to 10 days out, with limited slots prior for prompt requests.

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  • ARA

    Market circumstanced remain mainly unchanged. The market is well supplied and while demand is picking up, no immediate tightening is observed.

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  • Singapore

    VLSFO: The Asian low sulfur fuel oil market is anticipated to encounter increased pressure due to rising Western arbitrage flows into the Asia-Pacific region, ensuring ample near-term supplies. HSFO: Seasonal demand in the Middle East may support the Asian high sulfur fuel oil market, but slower utility procurement in July could soften the market. LSMGO: Asian ultra-low sulfur gasoil refinery margins are expected to stay strong from July 1-5, but increased spot volumes from refiners in July could offset the easing regional supply glut.

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  • New York
  • Fujairah
  • ARA
  • Singapore

Forward Curves

3.5% Barges R'Dam Curve

Weekly Report 040624 Page 0033

The 3.5% barges’ curve strengthened the backwardation, which is at $31.5 on the 6-month contract (front month minus the six-month contract).   The front fell $1/mt while the six-month fell $1.8/mt.

VLSFO 0.5% R'Dam Curve

Weekly Report 040624 Page 0034

The VLSFO 0.5% backwardation increased $1.8/mt to -$16.3/mt compared to a week prior. The curve is still in backwardation.

ICE Light Gasoil Curve

Weekly Report 040624 Page 0035

The ICE Gasoil curve rose $2.3/mt at the front compared to last week in absolute terms (June 28th compared to June 21st). The six-month rose by $2.8/mt. The curve is in backwardation, but unstable over the second through fourth month. The time spread for the 6-month period decreased $0.5/mt to minus $12.8/mt.

VLSFO 0.5% VS LGO and 3.5% Barges

Weekly Report 040624 Page 0036

The relative value of VLSFO compared to LGO at 6 months is flat at 70% and was unchanged in absolute terms to -$228/mt compared to 71% or $225/mt below LGO at the front. That $225/mt is down $1/mt compared to last week’s reading when the front was 71% of LGO.

Weekly Report 040624 Page 0033 Weekly Report 040624 Page 0034 Weekly Report 040624 Page 0035 Weekly Report 040624 Page 0036

Our point of view

Crude oil prices are up, gasoil prices are following suit. The benchmark ICE Gasoil reached its highest levels since mid-April on Tuesday. Although the market structure suggests some demand strength, the front months are only very moderately in backwardation. Brent however appears to be stalling for now. Headlines put the price increases so far down to expected demand increases and worries about supply and geopolitical tensions. Meantime, OPEC published its annual statistical bulletin, which allowed the organization to re-iterate its long-held view that is contrary to the IEA’s: “In 2023, for example, global oil demand expanded, year-on-year, by 2.6 million barrels of oil a day (mb/d) to reach an average of 102.2 mb/d. In addition, demand grew in almost every region, with the non-OECD leading the way. Immediately, one can see from the data that calls to avoid investing in new oil projects do not reflect realities worldwide. Instead, data-driven analysis points to the fact that oil demand continues to grow, and we believe it will continue to do so long into the future.”

 

Download the report here

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