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Insight Weekly Market Report Market report - 11.06.2024

Market Report Week 24 - 11.06.2024

Other insights Jun. 11, 2024
Market Report Week 24 - 11.06.2024 Download the report here

Summary

After decisions by the Bank of England and ECB, the US Federal Reserve is expected to keep rates unchanged on Wednesday, adopting a “wait and see” approach. The Bank of Japan is also anticipated to keep its rates steady. Inflation trends reveal mixed scenarios: China's inflation likely slowed to 0.2% in May, Germany's increased to 2.4%, France remained at 2.2%, and the US stayed at 3.4%. Argentina's inflation showed a slight rise. Industrial production data is varied: the UK's growth slowed to 0.3% in April, India's to 3.9%, and the Euro area's production is expected to decline by 7% in April. Japan also saw a decline, while China's April data indicated strong growth. Trade balances were mixed, with the Euro area's surplus falling and deficits in India and the UK. The US Fed will hold a press conference on Wednesday.

In the oil market, Baker Hughes reported a reduction in oil rigs to 492. The OPEC+ decision to reverse production cuts initially lowered prices, with varying reactions to subsequent announcements. Market concerns have shifted from stock draws to fears of oversupply. Reports from OPEC, EIA, and IEA are expected to cause price fluctuations as the market evaluates their implications.

The European Central Bank's June projections adjusted GDP growth and inflation forecasts, emphasizing the effects of monetary tightening and robust real wage growth on household consumption. Business investment is muted due to high interest rates but should gradually improve. Trade enhancements are anticipated, driven by rising global imports. The ECB also examined higher oil prices and China's trade strategy, suggesting China's export approach could lower inflation but also reduce GDP growth in the Euro area.

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Oil

- The Baker Hughes oil rig count decreased by four rigs to 492 last week, and the weekly average price of WTI was $75.1, down $3.4. The natural gas price at Henry Hub rose to $2.76/mmbtu, up 20 cents from the previous week.

- The OPEC+ announcement to gradually roll back the 2.2 mb/d of voluntary cuts initially decreased the oil price, falling $3.26/bbl to $78.36, but it has since moved back up.

- Since March 2023, OPEC+ has made seven decisions affecting oil prices, with varying impacts. Notably, the November decision to deepen production cuts saw prices drop by over $8.5/bbl in 10 days, taking 39 trading days to recover.

- In Q3 2023, concerns about significant stock draws were only partially correct, as evidenced by the price fall into the fourth quarter. Market concerns shifted from stock draws to oversupply, amplified by the reversal decision in June.

 

- This week will see reports from OPEC, EIA, and IEA, expected to cause price movements as the market assesses their implications for crude oil balances.

 

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The Economy

- The European Central Bank (ECB) revised its GDP growth forecast for the euro area to 0.9% for 2024 and 1.4% for 2025, adjusting due to stronger-than-expected early-year data and acknowledging that past monetary tightening continues to dampen growth.

- Inflation is projected to stay around 2.5% in 2024, decline to 2.2% in 2025, and further drop to 1.9% in 2026, with service price inflation causing a slow decline. The inflation target is now expected to be achieved in Q4 2025, a quarter later than previously forecast.

- Real GDP growth is primarily driven by household consumption, supported by robust real wage growth due to tight labor markets, while business investment is expected to be muted initially due to higher interest rates but should improve gradually in 2024.

- The outlook for trade shows global imports increasing by 2.6% in 2024, accelerating to 3.3% in 2025 and 2026. The ECB's oil price assumption follows the futures curve, predicting a drop to $78/bbl in 2025 and $74.5/bbl in 2026.

- The ECB's sensitivity analysis indicates that higher oil and gas prices would slightly increase inflation and slightly reduce GDP growth, while potential Chinese trade policies could export disinflation to the euro area, lowering GDP and inflation. The euro area, already suffering from weak trade, is more impacted by these factors compared to the USA.

 

Vessel rates

  • New York

    Demand is static up and down USEC. Liners tendering out on Q3 biz.

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  • Fujairah

    Regular VLSFO demand continues in the region, with buyers making use of low pricing levels in the oversupplied market the last week. Barge avails for all grades are OK, but HSFO still remains more difficult to arrange for prompt than 0.5 product. Bio demand remains minimal in the region.

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  • ARA

    Following an oil spill in Antwerp, which closed down one of the locks while cleaning, caused some delays, but not affecting the market that much. There are some issues with loading of VLSFO due to congestion, but the market is still well supplied. HSFO and MGO are still getting tighter but also not affecting the market as of yet.

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  • Singapore

    The LSFO market is expected to remain under pressure from June 10-14 due to ample prompt supplies and sluggish end-user demand in Singapore. Potential upsides to delivered premiums are limited, with softening upstream valuations and intense downstream competition affecting prices. In contrast, the HSFO market is well-supported by stable bunkering activity, seasonal summer power generation demand, and a shortage of non-sanctioned cargoes, leading to buoyant downstream demand and steady delivered premiums. The Asian gasoil complex is weighed down by long regional supply and swing barrels from the Persian Gulf and India, with stable-to-soft demand anticipated as the monsoon season approaches. Onshore commercial stocks of middle distillates rose by 0.38% to 10.85 million barrels from May 30 to June 5, according to Enterprise Singapore data.

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  • New York
  • Fujairah
  • ARA
  • Singapore

Forward Curves

3.5% Barges R'Dam Curve

Weekly Report 110624 Page 0033

The 3.5% barges’ curve is back in full backwardation, which is at $25.3 on the 6-month contract (front month minus the six-month contract). The front fell $7.3/mt while the six-month fell $17.8/mt.

VLSFO 0.5% R'Dam Curve

Weekly Report 110624 Page 0034

The VLSFO 0.5% backwardation decreased $4.8/mt to -$8.8/mt compared to a week prior. The front month and the second month are now the same, continuing a slow move towards contango on the VSLFO. However, the curve is still in backwardation.

ICE Light Gasoil Curve

Weekly Report 110624 Page 0035

The ICE Gasoil curve fell $9.5/mt at the front compared to last week in absolute terms (June 7th compared to May 31st). The six-month fell by $13.3/mt. The curve is in contango but falls between the 5th and 6th-month contract. The time spread for the 6-month period decreased $3.8/mt to plus $5.8/mt.

VLSFO 0.5% VS LGO and 3.5% Barges

Weekly Report 110624 Page 0036

The relative value of VLSFO compared to LGO at 6 months is flat at 70% and is also flat in absolute terms at -$222/mt compared to 71% or $208/mt below LGO at the front. That $208/mt is up $9/mt on last week’s reading when the front was 73% of LGO.

Weekly Report 110624 Page 0033 Weekly Report 110624 Page 0034 Weekly Report 110624 Page 0035 Weekly Report 110624 Page 0036

Our point of view

The ECB projections show the continued importance of oil (and gas) on the economy, both on GDP growth and inflation. For all the talk of degrowth and deindustrialisation, energy remains a very basic pillar of the economy. OPEC itself certainly seems to hold that view. In its latest monthly report, the organization holds on to the 2.25 mb/d growth for 2024 and the 1.85 mb/d growth in 2025. For the historically inclined, this weekend saw the 50th anniversary of the petrodollar agreement between the USA and Saudi Arabia. The agreement followed on the heels of the 1973 oil crisis, with oil prices quadrupling and resulting in very strong inflows of dollars into the middle east, and outflows from the USA. A security agreement was established, with the understanding that oil would be sold in USD, and that Saudi Arabia would buy US treasuries with the dollars. The agreement gave solid footing to the USD, which had been delinked from gold in 1971. A situation itself which provoked strong OPEC antagonism. That is 50 years ago. Nowadays, slowly but surely, more and more oil is sold in other currency than dollars, including rupees and yuan. That process will likely continue, eroding the USD primary world reserve currency status. And with that move, the direct effects of US monetary policy on the oil price will change. It will not happen overnight, but slowly and steadily.

 

Download the report here

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