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Insight Weekly Market Report Market report - 13.08.2024

Market Report Week 33 - 13.08.2024

Other insights Aug. 13, 2024
Market Report Week 33 - 13.08.2024 Download the report here

Summary

The upcoming week will see important releases of economic data, including interest rates and GDP growth figures for the second quarter. Inflation rates in Western economies have stabilized near target levels but are no longer declining. In the UK, inflation rose to 2.5% in July, and France saw an increase to 2.6%. Meanwhile, the US inflation rate remained at 3%, with core inflation ticking up to 3.3%. Japan's GDP price index is expected to drop to 2.7%, and India's wholesale price inflation is projected at 2.5%. The Euro area's GDP growth is anticipated to rise to 0.6%, and Japan has rebounded with a 2.3% growth in Q2. The UK's economy expanded by 0.9%, and industrial production grew across the UK, Euro area, and USA. China's industrial growth has slowed slightly, with retail sales increasing by 3%, still below the desired levels for a consumer-driven economy. Foreign direct investment in China continues to fall significantly, marking the steepest decline since the financial crisis. Trade balances improved in Singapore and the Euro area, while India's remained mostly stable. In the oil market, the Baker Hughes rig count increased slightly, with fluctuating oil prices driven by geopolitical risks and economic indicators. The EIA anticipates moderate growth in global oil demand, while OPEC+ plans a gradual production increase. Despite potential price rises from stock draws, market stability remains uncertain. The New York Fed's Global Supply Chain Pressure Index shows rising pressure, hinting at slack in the supply chain, while slowing trade growth prompts calls for interest rate cuts to boost demand amid a slowing global economy.

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Oil

- The U.S. Energy Information Administration's (EIA) Short-Term Energy Outlook and OPEC's monthly oil market report both indicate a slowdown in global economic growth, leading to decreased oil demand. China's oil demand growth is projected to be around 0.3 million barrels per day (mb/d) in 2024 and 2025, below historical averages, while OECD countries show increased demand offsetting China's reduction.

- The EIA expects overall oil demand growth to remain unchanged at 1.1 mb/d in 2024, with a slight decrease to 1.4 mb/d in 2025. Non-OPEC production has decreased slightly, while OPEC+ production remains stable. OPEC is projected to decrease production by 0.2 mb/d in 2024, with additional reductions from non-OPEC countries following OPEC policies.

- OPEC+ plans to gradually increase production in the latter quarters of 2024, with a total increase of 1 mb/d by 2025. This includes non-OPEC increases of 0.3 mb/d in Q3 and 0.1 mb/d in Q4 of 2024, plus an additional 1.6 mb/d through 2025. OPEC's surplus production capacity is declining as voluntary cuts are reversed.

- OECD crude oil stocks are expected to decrease by about 70 million barrels between June and December, leading to stock draws that could raise Brent prices to an average of $89 per barrel by February 2025. These stock draws and potential overproduction could result in future price declines.

 

- OPEC revised its demand forecasts downward, predicting demand growth of 2.1 mb/d in 2024 and 1.8 mb/d in 2025. Ongoing uncertainties in monetary policy, high-interest rates, and geopolitical factors may influence market sentiment and prices, potentially resulting in instability and strong stock draws if current output levels persist.

 

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The Economy

- The New York Fed’s Global Supply Chain Pressure Index for July shows a slight increase in pressure compared to June, with the current reading at -0.09. However, the June level was revised from -0.03 to -0.33, indicating a more relaxed supply chain than initially reported.

- The UN's merchandise trade Nowcast also suggests a weak supply chain, with Q1 trade growing by 0.74% from Q4 2023. Initial estimates for Q2 growth were about 0.75%, but have since been revised to 0.58%, while Q3 growth estimates have sharply fallen to nearly no growth.

- Central banks may have maintained high interest rates for too long, contributing to the economic slowdown. There is growing sentiment that rates should be cut, with U.S. Fed policymakers suggesting that inflation may have cooled enough to allow for future rate cuts.

- The Korea Development Institute has called for early interest rate cuts due to weak domestic demand, lowering its GDP growth forecast for 2024 from 2.6% to 2.5%. The forecast for 2025 remains at 2.1%.

- A challenge with cutting rates during a slowdown is that it takes time for the effects to be felt in the real economy. Significantly lower rates may be necessary to boost demand effectively, impacting both producers and consumers.

 

Vessel rates

  • Fujairah

    Steady demand remains in the region, especially with rumours of war abounding. HSFO strength continues as vessels avoid the shorter Red Sea route and load additional volume for the COGH round voyage. HSFO pricing is competitive around $15-20/mt discounts and VLSFO steady at the MOPS 0.5 +$7-10 range Some poor weather led to some small delays, but the forecast appears good for the next while.

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  • ARA

    HSFO Overall demand has been relatively quiet during previous week. Market remains tight on the prompt due to pull from bitumen and power sector. Arbitration from the West is closed, hence no new FO cargoes to arrive during 2nd half of August. Directionally market to remain strong into September which is also reflected in balance month/M1 and M1/M2 paper structure showing a steeper backwardation. VLSFO Market has strengthened on the back of recent cargo fixtures towards the East. Arbitration to Singapore remains open with some counterparties looking into new fixtures which have failed due to the lack of product in 2H of August. Directionally market to remain strong into September, M1/M2 and trading primer vs previous week highlighting the tight market conditions. MGO Market remains well supplied with demand being muted. Record cargo imports from the US and ME will add more length into the already well supplied market.

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  • Singapore

    In the marine fuel market, ample low-sulfur fuel oil (LSFO) stockpiles in Singapore are putting pressure on downstream premiums, as demand has been slightly impacted by recent surges in bunker premiums caused by temporary supply disruptions. Suppliers are concerned about a potential decrease in premiums due to these factors. For high-sulfur fuel oil (HSFO), significant inventory levels in Singapore may limit any major increase in bunker premiums, despite strong demand from end-users that has tightened refueling schedules. Traders anticipate increased competition among HSFO suppliers as Middle Eastern power generation demand slows, potentially boosting arbitrage flows toward Asia and maintaining well-supplied inventories. In the Asian gasoil market, fundamentals are expected to remain unchanged from August 12-16. Oversupply continues to affect gasoil and jet fuel/kerosene markets, and the market structure is likely to stay in contango. This situation, coupled with weak LR2 freight rates, may encourage some East-West arbitrage cargo movement.

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  • Fujairah
  • ARA
  • Singapore

Forward Curves

3.5% Barges R'Dam Curve

Weekly Report 130824 Page 0033

The 3.5% barges’ curve backwardation was unchanged at $27.8 on the 6-month contract (front month minus the six-month contract). The front rose $15.8/mt, and the six-month rose $15.8/mt as well. The front month spread (M0-M1) was unchanged too at $6.5.

VLSFO 0.5% R'Dam Curve

Weekly Report 130824 Page 0034

The VLSFO 0.5% backwardation decreased $4.8/mt to -$24.5/mt compared to a week prior. The curve is still in full backwardation.

ICE Light Gasoil Curve

Weekly Report 130824 Page 0035

The ICE Gasoil curve rose $7.5/mt at the front compared to last week in absolute terms (August 9th compared to August 2nd). The six-month rose by $0.9/mt. The curve is still in backwardation over the longer horizon but is in contango from the second through fourth month. The time spread for the 6-month period fell $3 to minus $2.5/mt.

VLSFO 0.5% VS LGO and 3.5% Barges

Weekly Report 130824 Page 0036

The relative value of VLSFO compared to LGO at 6 months is up 2% point at 71% and decreased $9/mt in absolute terms to -$211/mt compared to 74% or $189/mt below LGO at the front. That $189/mt is down $7/mt compared to last week’s reading when the front was 73% of LGO.

Weekly Report 130824 Page 0033 Weekly Report 130824 Page 0034 Weekly Report 130824 Page 0035 Weekly Report 130824 Page 0036

Our point of view

Oil prices are moving rapidly up again, with ICE gasoil jumping from Monday’s levels, following Brent upwards move. That may reflect ongoing stock draws, but today’s IEA oil market report was strongly bearish. Economic headwinds in China are lowering demand, although strength in the US economy offsets the slowdown. Combined, 2024 demand was unchanged, and below 1 mb/d. OPEC’s assessment that it may review its policy on reversal may seem prudent within the context of the IEA balance calculation. Even at current output levels, the OPEC+ grouping may start to overproduce from Q4 onwards. One agency is talking the market down, the other sketches an upward pressure. It is OPEC+ that appears to be helping out the entire oil market by keeping supply off the market. That also suggests the market is fundamentally unstable, driven by market management.

 

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