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Insight Weekly Market Report Market report - 19.03.2024

Market Report Week 12 - 19.03.2024

Other insights Mar. 19, 2024
Market Report Week 12 - 19.03.2024 Download the report here

Summary

The week's focus revolves around central bank interest rate decisions, notably from the US Federal Reserve, the Bank of England, and the Bank of Japan. The US Fed and the Bank of England are anticipated to maintain their rates at 5.5% and 5.25%, respectively. In comparison, the Bank of Japan is expected to transition from a negative 0.1% rate to 0%, marking a historic shift away from negative interest rates. Inflation rates vary globally, with the UK experiencing a decline to 3.5% in February, while Japan's inflation rises to 3%, prompting considerations for interest rate adjustments. Economic data reveals Argentina's contraction by 3.6% in Q4 2023, and China's foreign direct investment dropping by 19% in the first two months of the year.

The International Energy Agency (IEA) forecasts increased oil demand for 2024, primarily driven by the USA and marine bunkers, with a notable slowdown in Chinese demand growth due to economic deceleration. OPEC+ production cuts are anticipated to continue through 2024, altering market dynamics to balance supply and demand. The Red Sea situation affects oil stocks, with onshore stocks declining while oil at sea rises due to longer voyages. However, discrepancies in reported data continue to create market uncertainty, with substantial unaccounted-for balances affecting projections.

The main concern lies in central bank decisions, particularly the US Federal Reserve, as inflationary pressures intensify globally. Rising energy costs contribute to inflationary trends, potentially delaying rate cuts. In the Euro area, inflation rises to 2.6% year-on-year in February, driven by increasing oil prices. This inflationary pressure may defer rate cuts in the Eurozone as well. Overall, economic indicators suggest a cautious approach by central banks amidst evolving inflationary dynamics and geopolitical uncertainties.

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Oil

- IEA forecasts increased oil demand for 2024 by 0.1 mb/d to 1.3 mb/d, driven by USA and marine bunkers, with China's growth halving due to economic slowdown and petrochemical sector constraints.

- European demand is expected to decline in 2024, while LPG, ethane, and residual fuel oil demand growth is primarily projected in non-OECD countries.

- OPEC+ cuts assumed to persist through 2024, balancing market dynamics to prevent a projected build from Q2 onwards.

- Red Sea situation prompts a shift in oil stocks: oil at sea rises due to longer voyages, while onshore stocks decline for the seventh consecutive month.

 

- Substantial unaccounted-for balance in IEA reports creates market uncertainty, with missing barrels estimated at over 2.4 mb/d in January and February, impacting supply-demand dynamics.

 

The Economy

- Central bank interest rate decisions, particularly the US Federal Reserve's, dominate market focus this week, with expectations for no change, disappointing investors who anticipated cuts.

- Central banks, including the US Fed, emphasize maintaining higher rates until confident in achieving target inflation levels, despite external impacts.

- Inflation in the USA is rising, with core services CPI nearing 6% annualized and the US producer price index for final demand increasing by nearly 7% annually in February, driven by rising energy costs and core goods.

- Euro area inflation for February reverses previous month's decline, reported at 2.6% year-on-year and 0.6% month-on-month, fueled by rising oil prices which may delay rate cuts.

- Trade balance in the Eurozone remains positive as mineral fuel imports decrease, but gains could be reversed due to increasing oil prices, leading to inflationary pressures and potentially delaying rate cuts.

 

Vessel rates

  • New York

    Demand remains strong from liners, demand into Q2 and Q3 is indicated to be large after seeing tenders.

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  • Fujairah

    Ship fuel sales at the UAE's Port of Fujairah in February dropped 6.1% on the month as high winds led to a backlog of orders being filled, according to Fujairah Oil Industry Zone data published March 15. Total volume fell to 633,226mt last month from 674,510mt in January, the figures on a FOIZ-S&P Global Commodity Insights website showed. Sales were 11% higher than a year earlier. VLSFO remains tight with lead time on barge avails 10 days out. HSFO is also facing schedule tightness with many booked up until 26th March.

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  • ARA

    Demand has increased slightly, making the market somewhat more balanced than seen over the last few weeks, where suppliers were ultra-aggressive to get some volume in. The demand increase has led to movement on the premiums and discounts.

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  • Singapore

    The LSFO market is expected to experience increased demand from March 18-22 due to anticipated tight supplies in April, despite current competition among bunker suppliers. Concerns over reduced exports from Kuwait and Sudan's Dar Crude blend may impact supply levels. Demand for LSFO in Singapore is predicted to remain subdued initially, but traders anticipate a pickup later in March. Conversely, the HSFO market may see some support from Chinese and South Asian demand, yet oversupply issues persist, limiting significant improvements. Downstream HSFO bunker premiums are likely to stay rangebound due to slow demand, while Asian gasoil fundamentals remain weak with ample supplies, although spring refinery maintenance could alter this in April and May.

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  • New York
  • Fujairah
  • ARA
  • Singapore

Forward Curves

3.5% Barges R'Dam Curve

Weekly Report 190324 (1) Page 0033

The 3.5% barges’ curve decreased the backwardation at the six-month horizon and is in contango for the first five months of the curve. Backwardation is $3.3/mt at the six-month horizon. The front rose $21.8/mt while the six-month rose $27.8/mt.

VLSFO 0.5% R'Dam Curve

Weekly Report 190324 (1) Page 0034

The VLSFO 0.5% backwardation decreased $1.3/mt to -$35.3/mt, compared to a week prior.

ICE Light Gasoil Curve

Weekly Report 190324 (1) Page 0035

ICE Gasoil curve rose $11.5/mt at the front compared to last week in absolute terms (March 15th compared to March 8th). The curve remains fully in backwardation in both absolute terms, and in relative terms. The six-month rose by $32.3/mt. The time spread for the 6-month period decreased $20.8/mt to -$40.3/mt.

VLSFO 0.5% VS LGO and 3.5% Barges

Weekly Report 190324 (1) Page 0036

The relative value of VLSFO compared to LGO at 6 months was up 1% at 69% and in absolute terms up $7 at -$245/mt compared to 70% or $250/mt below LGO at the front. That $250/mt is down $13/mt on last week’s reading when the front was at 68% of LGO.

Weekly Report 190324 (1) Page 0033 Weekly Report 190324 (1) Page 0034 Weekly Report 190324 (1) Page 0035 Weekly Report 190324 (1) Page 0036

Our point of view

The Bank of Japan took the decision to increase its interest rate. It is the last central bank to give up on negative rates which were supposed to drive economic growth. The bank is hopeful that the latest wage settlements in the country will ensure that inflation moves towards the 2% target. The deflationary period should be in the rear-view mirror. And so, the world is in a situation where one country desperately wants inflation, and a large number of other countries want to get rid of it. In both cases, the solution is higher rates, but from a completely different starting point. In the meantime, investment banks are upping their oil price forecasts in follow-up to the agencies’ monthly reports. The price has been slowly rising since the beginning of the year and more specifically since the OPEC+ decision at the beginning of the month. But as the past years have shown, the persistence of the price rise following on the OPEC+ decisions is very short, indicating underlying market weakness.

 

Download the report here

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