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Insight Weekly Market Report Market report - 30.04.2024

Market Report Week 18 - 30.04.2024

Other insights Apr. 30, 2024
Market Report Week 18 - 30.04.2024 Download the report here

Summary

Looking ahead, the upcoming week appears relatively calm in terms of economic indicators, although all eyes are on the US Federal Reserve's impending interest rate decision, slated for Wednesday. Market turbulence is anticipated around this announcement, with expectations leaning towards the Fed maintaining rates at their current 5.5% level. Additionally, several emerging market countries are set to report their GDP growth for the first quarter, with projections varying. For instance, Saudi Arabia is expected to rebound with a growth rate of 2.5% over Q1 2023, following a 4.3% fall in Q4. Conversely, Mexico's growth rate is anticipated to have slowed to 2.3% from 2.5% in Q4, while Indonesia's growth may have slipped to 4.8% from over 5% in the previous quarter. Industrial production forecasts diverge, with France expecting a 0.7% uptick over February, while Brazil's annual growth is expected to decelerate to 2.3%. Despite projections of a 1.8% rise in US factory orders over February, both US and Eurozone manufacturing PMIs signal contraction, albeit at differing levels.

In the oil market segment, the earnings season for major players like ExxonMobil, Chevron, Equinor, and TotalEnergies has commenced. Despite marginal differences in oil prices between Q1 2024 and Q1 2023, gas prices have seen considerable declines. Overall, oil and gas production remains relatively stable, though there are notable variations in cash from operations across companies. Capital expenditure saw a decline across the board, with Chevron being a notable exception, increasing capital spending by 35% annually. Despite this, all companies exceeded their capital outlays through share buybacks and dividends. Major ongoing projects include Total's phase two of the Mero field in Brazil and Exxon's Payara production unit reaching full capacity in Guyana.

Regarding the economy, the Dutch Central Planning Bureau's World Trade Monitor indicates a 1% increase in global trade from January levels, though with some distortion due to revised figures. Notably, the USA continues to report strong export growth. However, world industrial production remains mixed, with the Eurozone experiencing a significant downturn. EU industrial sentiment reflects pessimism, indicating minimal prospects for improvement. In the USA, Q1 economic growth slowed to 1.6%, attributed to a widening trade deficit driven by a notable increase in imports over exports. Additionally, inflation has re-accelerated in the USA, prompting the Federal Reserve to maintain rates amidst concerns, particularly regarding core services. Overall economic sentiment remains cautious, influenced by uncertainties surrounding global trade and inflationary pressures.

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Oil

- Baker Hughes oil rig count decreased by 5 rigs to 506 last week.

- Weekly average of WTI was $83.3, down $0.6 week-on-week.

- Natural gas price at Henry Hub dropped to an average of $1.70/mmbtu, a decrease of five cents from the previous week, with Friday's price falling to just over $1.61.

- Oil majors, including ExxonMobil, Chevron, Equinor, and TotalEnergies, have begun reporting Q1 results, with oil prices marginally lower than Q1 2023 but gas prices significantly lower (20-50%+).

 

- Despite stable oil and gas production overall, European companies saw significant declines in cash from operations (Equinor by nearly 40%, TotalEnergies by nearly 60%), while Chevron increased capital spending by 35% annually. All companies exceeded their capital outlays with share buybacks and dividends.

 

The Economy

- The Dutch Central Planning Bureau's World Trade Monitor for February revealed a 1% increase in global trade from January levels, albeit with distortions due to downward revisions in January figures.

- Imports surged for Japan, the Eurozone, Latin America, and emerging Asia (excluding China), while the USA reported robust export growth. However, world industrial production remained flat compared to a year ago, with significant declines in the Eurozone and Japan.

- EU industrial output is below the average since 2016, reflecting a faltering economy. Industrial sentiment in the EU hit its weakest level since July 2020, indicating little improvement expected, with manufacturers' assessments of order books deteriorating sharply.

- US economic growth in Q1 slowed to an annualized rate of 1.6%, down from 3.4% in Q4. Consumer spending and gross private investment increased, but the trade deficit widened significantly, negatively impacting GDP growth.

- Inflation re-accelerated in the USA in Q1, with the core PCE price index rising by 3.9% annualized in March. The Federal Reserve is expected to maintain rates unchanged amidst inflationary pressures.

 

Vessel rates

  • New York

    Demand from liners picking up. VLSFO avails are short on USEC, delays in landed cargo and longer turnaround.

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  • Fujairah

    As of Monday, April 22 total oil product stocks in Fujairah were reported at 21.640 million barrels with a fall of 393,000 barrels or decline of 1.8% week-on-week, falling back below the 22-million-barrel. The stocks movement saw a small build in heavy residues while there were draws in light distillates and middle distillates. Bad weather is due to hit the region (again) on 1st May which impacts operations. Demand is steady across all grades, barge avails are tight with some suppliers on both HSFO and VLSFO having an earliest supply of 8-9th May onwards.

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  • ARA

    Gasoil may become tighter and discounts decreasing (more expensive), while discounts are currently trading steadily around the -$35-$40/mt range.

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  • Singapore

    The VLSFO market is anticipated to remain stable in the coming week after facing pressure in April due to weak bunker fuel demand. While demand in Singapore shows slight improvement, traders foresee ample upstream stockpiles, limiting any significant tightening in early May. LSFO flows may be restricted by limited arbitrage opportunities, but shipments rolling over from April to May are expected to maintain reasonable supply levels around Singapore. In contrast, geopolitical tensions in the Middle East have boosted HSFO valuations, strengthening the market structure. Despite average demand in Singapore, traders anticipate HSFO premiums to remain supported. Conversely, weaker demand and increased spot barrels from the Persian Gulf and India are likely to weigh on the Asian ultra-low sulfur gasoil market, with onshore commercial stocks in Singapore reaching a more than two-year high.

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  • New York
  • Fujairah
  • ARA
  • Singapore

Forward Curves

3.5% Barges R'Dam Curve

Weekly Report 300424 Page 0035

The 3.5% barges’ curve is in contango for the first four months of the curve but shows a $9.3 backwardation on the 6-month contract. Contango is $6/mt at the three-month horizon but shows $9.3 backwardation at the six-month time-spread. The front rose $16.5/mt while the six-month rose $9.3/mt.

VLSFO 0.5% R'Dam Curve

Weekly Report 300424 Page 0036

The VLSFO 0.5% backwardation decreased $4.5/mt to -$25/mt, compared to a week prior.

ICE Light Gasoil Curve

Weekly Report 300424 Page 0037

The ICE Gasoil curve rose $6.8/mt at the front compared to last week in absolute terms. The curve continued its contango structure through the seventh month. The six-month rose by $1/mt. The time spread for the 6-month period increased less than $1/mt to plus $6.8/mt.

VLSFO 0.5% VS LGO and 3.5% Barges

Weekly Report 300424 Page 0038

The relative value of VLSFO compared to LGO at 6 months was flat at 71% and in absolute terms up $1 at -$228/mt compared to 75% or $196/mt below LGO at the front. That $196/mt is up $4/mt on last week’s reading when the front was at 75% of LGO.

Weekly Report 300424 Page 0035 Weekly Report 300424 Page 0036 Weekly Report 300424 Page 0037 Weekly Report 300424 Page 0038

Our point of view

The Euro Area’s GDP growth rate in Q1 is reported at 0.4% year on year, outpacing a 0.1% forecast, with the overall inflation rate stable at 2.4%. However, the overall area’s growth rates were quite different between the major countries. France reported a 1.1% increase, with inflation increasing. Germany recorded another contraction, at -0.2% worse than forecast, while Italy’s economy is estimated to have grown by 0.6% year on year, double the forecast. Italian inflation is among the lowest in the currency zone, at 1% annually. But it is the German number that is the most painful for the block. The country is now officially in recession, if the numbers are confirmed that is, as this is just a flash indication and most of the EU countries are not yet reported in the Eurostat data. With last week’s dismal outlook from the German federation of industries, the backbone of the Euro industrial economy is faltering and likely to continue to do so. The April manufacturing PMI was reported at 42.2, while an improvement over March, it is still in contraction. The drag down by the German economic performance on the EU total will start to show up at some point, and with it, European oil demand will weaken further.

 

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