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Insight Weekly Market Report Market report - 10.09.2024

Market Report Week 37 - 10.09.2024

Other insights Sep. 10, 2024
Market Report Week 37 - 10.09.2024 Download the report here

Summary

In the upcoming week, key economic indicators will be released, including the International Energy Agency’s (IEA) Monthly Oil Report on Wednesday, which could influence oil prices depending on market balance assessments. On Thursday, the European Central Bank (ECB) is expected to lower its policy rate by 0.25 percentage points to 4%, followed by a press conference. Wage growth data for the Euro area, anticipated to fall to 3.2%, will be released on Monday, along with a projected €22 billion trade surplus. The UK’s trade deficit is improving slightly, though industrial production has declined by 1.2% in July. In contrast, India’s industrial production grew by 4.4% in July, Japan’s by 2.7%, and China’s by 4.7% in August. US inflation is expected to be 2.7% in August, while India’s inflation continues to decrease towards 3%, with Argentina still facing hyperinflation exceeding 250% annually.

In the oil market, the Baker Hughes rig count remained at 483, and WTI prices averaged $69.1. OPEC has downgraded its 2024 and 2025 demand growth forecasts but still expects strong growth due to robust consumer spending and anticipated accommodative monetary policies. The demand for 2024 is projected at 2 million barrels per day (mb/d), with a forecast of 1.7 mb/d for 2025. Non-Declaration of Cooperation (DoC) liquids supply is expected to grow by 1.2 mb/d in 2024. Despite a significant draw in stock levels and OPEC's decision to hold off on increasing production until December, crude oil prices remain weak due to substantial spare capacity.

The FAO reported a slight decline in the global Food Price Index for August, mainly due to lower prices for sugar, meat, and cereals. The index is 1.1% below August 2023 levels, though still 20% above 2019-2020 levels. If prices do not continue to fall, they could contribute to inflation. A new study suggests the US may already be in recession, with high unemployment rates justifying potential rate cuts by the Federal Reserve. The combined economic slowdowns in Europe, the US, and China could lead to a reduction in global trade activity.

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Oil

- The Baker Hughes oil rig count remained at 483 for the fourth consecutive week. The average price of West Texas Intermediate (WTI) crude oil dropped to $69.1, down $6.3, while the Henry Hub natural gas price rose to $2.2 per million British thermal units (mmbtu).

- OPEC has reduced its demand growth forecast for 2024 and 2025, revising 2024 demand down to 2 million barrels per day (mb/d). Despite economic uncertainties, strong consumer spending, particularly in the services sector, supports this growth. Central banks are expected to adopt more accommodative policies, which should bolster near-term global growth.

- OPEC's demand growth projection is approximately double that of the International Energy Agency (IEA). For 2025, demand is revised to 1.7 mb/d. The non-Declaration of Cooperation (DoC) liquids supply is forecasted to grow by 1.2 mb/d in 2024, driven by the US, Canada, and Brazil, with similar growth expected in 2025.

- Crude oil production by DoC countries decreased by 0.3 mb/d in August, averaging 40.7 mb/d. The market requires 42.8 mb/d in 2024 and 43.4 mb/d in 2025, significantly higher than the current production levels of around 41 mb/d.

 

- Stock draws increased from 0.7 mb/d in Q1 to 1.3 mb/d in Q2, with a forecasted jump to over 2 mb/d in Q3 due to OPEC's decision to delay increasing oil supply until December. Despite this tightening, crude oil prices remain weak, with substantial spare capacity limiting price increases.

 

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The Economy

- The FAO reported a slight decrease in the Food Price Index in August, averaging 120.7 points, down from July and 1.1% below August 2023, due to lower prices for sugar, meat, and cereals, despite rising costs for vegetable oils and dairy.

- While food prices are below 2022 peaks, they remain 20% higher than levels from 2019-2020. To avoid contributing to inflation, a further decrease in the price index is needed.br>

- A new study suggests a high probability of the US economy being in recession based on job openings and unemployment rates. Current unemployment rates, below the full employment target of 4%, may lead to increased interest rates and a potential future need for rate cuts if the labor market softens.

- Both the European and Chinese economies are showing signs of slow growth, contributing to a general economic slowdown.

- The combined slowdowns in the US, Europe, and China suggest that global trade is likely to experience a downturn as a result.

 

Vessel rates

  • New York

    Demand super heavy from liner segment for HSFO. VLSFO increasing into Q4 from liners as well. LSGO demand sideways.

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  • Fujairah

    Fujairah continues to experience limited avails across HSFO and VLSFO. Factors due to limited cargo imports and terminal delays from bad weather mean barge loading activity has been below 20 barges on a weekly basis across August. Balance Sept continues to look tight. There are 10 days’ lead time on bunker orders, so it is advised to ensure enough notice on inquiries to reduce the impact of prompt premiums. The above factors mean prices across both grades have spiked in recent weeks versus YTD avg.

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  • ARA

    Similar picture to prior weeks, VLSFO and HSFO remain tight and MGO well supplied.

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  • Singapore

    The Asian low sulfur fuel oil fundamentals would likely witness some downward pressure over Sept. 9-13, as the market increasingly starts trading cargoes for loading in late-September and early-October, when higher arbitrage arrivals from the West are expected replenish regional stockpiles. The Asian high sulfur fuel oil market continues to garner support from limited availability of non-sanctioned supplies amid relatively stable downstream bunkering activity and the final leg of summer power generation demand, but traders said the market would start losing some of the pockets of strength as seasonal utility demand tapers off in coming weeks. HSFO supplies from Fujairah to Singapore are expected to increase going forward as peak Middle East summer demand wanes, according to trade sources. Despite a recent strengthening of HSFO cash premiums, traders expect the adequate cargo availabilities around Singapore hub to cap any further potential upswings in valuations, especially amid replenishment inflows during the week ended Sept. 6 and more imports in the third to fourth week of September. Overall HSFO stockpiles around the hub of Singapore were mostly adequate, whereas a mostly consistent demand dynamics in the end-user market could continue to buoy bunker premiums and keep margins healthy in the near term. The Asian LSMGO market is expected to be stable to slightly firmer over Sept.9-13.

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  • New York
  • Fujairah
  • ARA
  • Singapore

Forward Curves

3.5% Barges R'Dam Curve

Weekly Report 100924 Page 0034

The 3.5% barges’ curve backwardation decreased by $16.5 to $11.8 on the 6-month contract (front month minus the six-month contract). The front fell $44.9/mt, and the six-month fell $28.4/mt. The front month spread (M0-M1) increased $2.4 to $11.3.

VLSFO 0.5% R'Dam Curve

Weekly Report 100924 Page 0035

The VLSFO 0.5% backwardation fell $6.7/mt to -$31.5/mt compared to a week prior. The curve is still in full backwardation.

ICE Light Gasoil Curve

Weekly Report 100924 Page 0036

The ICE Gasoil curve fell $46/mt at the front compared to last week in absolute terms (September 6th compared to August 30th). The six-month fell by $43.5/mt. The curve is in contango, although swirly on between months. The time spread for the 6-month period rose $2.5 to plus $1.8/mt.

VLSFO 0.5% VS LGO and 3.5% Barges

Weekly Report 100924 Page 0037

The relative value of VLSFO compared to LGO at 6 months is flat at 70% and decreased $12/mt in absolute terms to -$194/mt compared to 75% or $161/mt below LGO at the front. That $161/mt is down $8/mt compared to last week’s reading when the front was 76% of LGO.

Weekly Report 100924 Page 0034 Weekly Report 100924 Page 0035 Weekly Report 100924 Page 0036 Weekly Report 100924 Page 0037

Our point of view

The news headlines discussed the demand outlook lowering by OPEC. Yet, as illustrated, the reductions are small only, and have hardly any impact on the very tight market balance the organisation projects. For most of the past year and half of OPEC decisions, the crude oil price dropped afterwards, whether that were decisions to decrease output or to extend. Last week’s decision is no exception, and the market does not appear impressed with the strong stockdraws OPEC projects. Brent dropped below $70/bbl during Tuesday, resulting in a cumulative more than $3/bbl decline since the decision was announced. All eyes will now be on the ECB rate cuts this week and the US Fed rate decision on the 18th. The oil market seems to be indicating that a recession is already underway, and as we have said many times, rate cuts, even aggressive ones, will take time to filter through into the real economy and boost (oil) demand.

 

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