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Insight Weekly Market Report Market report - 23.07.2024

Market Report Week 30 - 23.07.2024

Other insights Jul. 23, 2024
Market Report Week 30 - 23.07.2024 Download the report here

Summary

In the upcoming week, purchasing manager's indexes (PMIs) for six countries and regions will be released, showing slight improvements. France, Germany, and the Euro area are still experiencing contraction, while the UK, the USA, and India are showing expansion, with India experiencing robust growth. Despite overall expansion in the USA, the Dallas Fed manufacturing index remains negative. Singapore's industrial production is expected to have grown by nearly 3% year-on-year in June. European PMIs reflect weaker business confidence, noting falling French business confidence and a slightly positive but still negative German Ifo business climate. The USA’s advance estimate of economic growth anticipates a 2.5% annualized increase, with the price index nearing the Federal Reserve's target of 2.5%. Singapore's producer price index nearly doubled to 5%.

The Baker Hughes oil rig count decreased by one rig to 477 last week, with WTI oil prices averaging $81.7 per barrel. Natural gas prices at Henry Hub fell to $2.1/mmbtu. BP’s Energy Outlook for 2024 highlights a historic transition in which new low-carbon energy sources are expected to lead to substitution rather than increased primary energy consumption. Oil demand is projected to peak this decade and decline significantly by 2050, primarily in developed economies, impacting trade patterns and refinery operations. Despite little change in OPEC+ and non-OPEC+ balance, US tight oil will peak before Brazil and Guyana take over.

The International Monetary Fund's July update to the World Economic Outlook forecasts global growth at 3.2% in 2024 and 3.3% in 2025, driven by emerging Asian markets. Persistent services inflation complicates disinflation efforts, possibly leading to prolonged high interest rates. High global indebtedness and increased trade measures pose additional risks to economic growth, with potential policy adjustments needed to address debt-to-GDP ratios and the rise in unilateral trade actions threatening multilateral trade systems.

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Oil

- BP’s Energy Outlook 2024 emphasizes that the current energy transition will lead to substitution of fossil fuels by low-carbon energy rather than increasing overall primary energy consumption. This shift is expected to be achieved in the next decade and a half.

- The report warns that the current transition is progressing too slowly, potentially causing a “costly and disorderly” adjustment by the mid-2030s.

- BP projects a decline in global oil demand, driven primarily by reduced use in road transport due to increased electricity use, with demand peaking this decade and falling to 80-100 mb/d by 2035, significantly impacting developed economies.

- Changing trade patterns and substantial industrial re-arrangement in developed economies are anticipated, with refinery throughput in the Atlantic Basin decreasing by 5-15 mb/d by 2035 and another 10-20 mb/d by 2050.

 

- On the supply side, BP expects minimal change in the balance between OPEC+ and non-OPEC+, with US tight oil peaking at 16 mb/d by the late 2020s and Brazil and Guyana compensating for the subsequent decline in US output.

 

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The Economy

- The IMF's July update to the World Economic Outlook projects global growth at 3.2% in 2024 and 3.3% in 2025, with Asia's emerging markets, particularly India and China, driving almost half of this growth. However, growth prospects for the next five years remain weak due to declining momentum in emerging Asia.

- Services inflation, which makes up over 60% of inflation in the USA, was 7% annualized in June, hindering disinflation efforts. This inflation persistence raises the likelihood of prolonged higher interest rates amidst escalating trade tensions and policy uncertainty.

- Prolonged higher interest rates, particularly by the US Federal Reserve, could risk overall economic growth, strengthen the dollar, and have detrimental effects on emerging and developing economies.

- The IMF highlights high debt-to-GDP ratios as a significant risk to the global outlook. Many countries will need to reduce public spending to manage debt levels, with the European Commission indicating several EU countries must cut budgets to comply with rules, increasing exposure to higher interest rates.

- Increased trade measures and unilateral tariffs are another key concern. The dismantling of the multilateral trading system threatens global prosperity, as more countries impose policies potentially violating World Trade Organization rules, directly impacting global trade and shipping.

 

Vessel rates

  • Fujairah

    Fujairah stocks of heavy residues rose by 582,000 barrels, up 6.2% on the week as they stood at 10.003 million barrels, returning above the 10-million-barrel level. Demand in July has been strong with good sales of VLSFO and HSFO. Bad weather continues to disrupt bunker STS causing schedules to tighten balance July. A 10-day lead time suggested to avoid higher premiums across all grades.

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  • ARA

    HSFO: Market remains tight on the front on the back of late cargo arrivals and good demand during previous week. Over the weekend we have seen some loading delays at Vopak terminal. ARA market is awaiting new cargo arrivals from the West, expect avails to improve into the start of August. The front curve on paper side, balance month/M1 & M1/M2 weakened over the last couple of days also hinting towards a better supplied market throughout the rest of Q3. VLSFO: Overall very low sulfur market remains well supplied. East-West spreads have firmed over last couple of weeks potentially creating an arbitrage opportunity, however no news on any cargo fixtures out of ARA. The low sulfur market (utility spec) is weak on the front due to lack of demand from power generation, hence some of the volume can end up on the marine pool (HSFO & VLSFO). MGO: Market is well supplied on the back of continuous incoming cargoes on middle distillates from West & East of Suez. Muted demand seen from industrial sector both on high sulfur GO (1000 ppm) and from a heating oil perspective (50ppm). ICE GO futures M1/M2 & M2/M3 weakened showing a contango structure highlighting a well-supplied market.

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  • Singapore

    The Asian low sulfur fuel oil (LSFO) market is expected to face pressure during July 22-26 as higher arbitrage arrivals from the West add to existing stockpiles. Despite relative support in early August, sluggish downstream activity in Singapore, the world’s largest bunkering hub, and increasing regional supplies are weighing on the market. Downstream bunker demand in Singapore is anticipated to be uneven due to aggressive competition and sufficient inventories. Conversely, the Asian high sulfur fuel oil (HSFO) market is likely to remain supported by tighter availability of non-sanctioned cargoes and stable bunker demand, with potential short-lived price increases due to summer power generation demand. The Asian middle distillates complex, including low sulfur marine gasoil (LSMGO), is expected to be weighed down by lackluster demand, leading to increased regional stockpiles. Swing barrels from India and unfavorable East-West arbitrage economics further exacerbate the supply glut. Singapore's onshore commercial stocks of middle distillates rose 31.83% to 11.15 million barrels over July 11-17, an 11-week high.

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  • Fujairah
  • ARA
  • Singapore

Forward Curves

3.5% Barges R'Dam Curve

Weekly Report 230724 Page 0033

The 3.5% barges’ curve also saw a fall in the backwardation, which is at $30.3 on the 6-month contract (front month minus the six-month contract). The front fell $20/mt, and the six-month fell $11.8/mt. The front month spread (M0-M1) fell from $8 to $4.5.

VLSFO 0.5% R'Dam Curve

Weekly Report 230724 Page 0034

The VLSFO 0.5% backwardation increased $2.8/mt to -$27.0/mt compared to a week prior. The curve is still in full backwardation.

ICE Light Gasoil Curve

Weekly Report 230724 Page 0035

The ICE Gasoil curve fell $24.5/mt at the front compared to last week in absolute terms (July 19th compared to July 12th). The six-month fell by $18.8/mt. The curve is in backwardation over the longer horizon but moved back into contango from the second through fourth month. The time spread for the 6-month period fell $5.8 to minus $5.5/mt.

VLSFO 0.5% VS LGO and 3.5% Barges

Weekly Report 230724 Page 0036

The relative value of VLSFO compared to LGO at 6 months is up 1% point at 71% and decreased $9/mt in absolute terms to -$217/mt compared to 74% or $196/mt below LGO at the front. That $196/mt is down $17/mt compared to last week’s reading when the front was 73% of LGO.

Weekly Report 230724 Page 0033 Weekly Report 230724 Page 0034 Weekly Report 230724 Page 0035 Weekly Report 230724 Page 0036

Our point of view

The ECB held its rate unchanged last week. The discussion turns around incoming data. The ECB updates its outlook by September, and the bank considers that a better moment to decide what to do with the interest rates. It is worried about services inflation, which is running at over 4%, and is only expected to start to cool down by 2025. The reason is, the bank says, that the wage increases to catch up with the earlier inflation are having their effects in 2024. It believes that next year’s increases will be much more moderate, pushing down services inflation, which will then bring down overall inflation. At least that is the hope and expectation. The US Federal Reserve is likewise expected to keep its rate unchanged until September. This week will see the Q2 GDP growth rate for the USA, and if that rate is strong, it is more likely than not that the bank will be very modest with a rate cut. In short, the monetary policy for now is not indicating any immediate support for oil prices.

 

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