Commodity Tracker: 4 charts to watch this week

India and China could potentially face higher competition for Venezuelan crude after the US lifted sanctions it had placed on the Latin American country. S&P Global Commodity Insights editors are also keeping an eye on the impact of a fall in the US' gas rig counts, plant closures following negative ethylene derivative margins and olive oil production in the EU.

1. Asia looks to Middle East oil after Venezuela sanctions relief

What's happening? In early October, the US Department of the Treasury eased oil, trade and financial sanctions on Venezuela for a six-month period, which could be renewed if the Maduro government follows through on its political and electoral commitments. While China's independent refiners have remained active buyers of Venezuelan crude in recent years despite the sanctions, India and other Asian buyers have largely stayed away from those barrels. For Shandong-based independent refiners, it has been relatively easy to source those barrels in the absence of many takers.

What's next? Increased competition(opens in a new tab) for the Latin American cargoes, particularly from the US and Europe, could potentially make it difficult for buyers like China and India to source incremental cargoes from the supplier, prompting them to look at the Middle East to fill the vacuum. If Chinese private refiners turn to Middle Eastern crude, it could strengthen the Dubai market structure, which had eased slightly in early Q4 following a rally over June-September. This would work against other Asian refiners who had expected Aramco and ADNOC to stop their recent trend of OSP hikes.

2. US gas rig count falls, may cut storage surplus

What's happening? The US oil and gas rig count fell by 20 to 685 in the week to Oct. 18, its lowest since December 2021, according to S&P Global data. Total rig activity is down over 20% on the year, while gas-directed rig numbers have dropped about 28% since the first week of January. Gas production is also down from its 2023 monthly average high above 102 Bcf/d but has yet to take a major hit amid falling rigs, averaging about 101.7 Bcf/d month to date, S&P Global data showed.

What's next? US natural gas producers expect declining rig activity and high LNG feedgas demand to cut into the gas storage surplus(opens in a new tab) over the coming months, providing upside to pricing going into the new year. Despite declining rig activity, current S&P Global models call for gas production to rise incrementally month over month through December and remain above 102 Bcf/d through the middle of 2024.

3. EU ethylene derivative margins weak, drive plant closures

What's happening? Ethylene derivative plants have started to temporarily shut(opens in a new tab) amid negative margins as a combination of high feedstock costs and persistently weak demand strengthens. As oil prices surged towards the $100/b mark in October, chlorine, PVC and PET producers have shut plants to rebalance and mitigate weak market sentiment amid their inability to compete with lower cost US and Middle Eastern imports. Jbf Global Europe also announced a temporary shutdown of its PET Laakdal plant, while Dutch chlorine producer Nobian shut its Bitterfeld chlorine plant in Germany.

What's next? A demand recovery is not expected before the fourth quarter of 2024. This has prompted some to go further and suggest that more inefficient and ageing naphtha crackers and other ethylene derivative units be mothballed in a more permanent rationalization that would allow them to compete more effectively. These would be replaced by the newer, refurbished and more efficient plants due to start up.

4. EU olive oil output to fall 39% on year

What's happening? Olive oil production in the EU(opens in a new tab) is forecast to fall to 1.385 million mt in 2023, down 39% from 2.272 million mt in 2022, according to data from the International Olive Council and the European Commission. Extreme weather such as soaring temperatures across Southern Europe have set back olive harvests for the second year in a row. These factors have pushed prices upward, with Spanish virgin olive oil prices reaching Eur7,253/mt ex-mill Jaen in October, 71% higher year on year. Italian virgin olive oil prices rose to Eur7,850/mt ex-works Italy in October, up 72% on the year.

What's next? The huge reductions in production have raised several concerns within the region, with lower EU availabilities and uses for the rest of 2023 and early 2024. Estimated EU ending stocks are forecast to be below average in 2023 at 309,000 mt, down from 671,000 mt in the previous season. Due to the continued shortfall, olive oil prices are likely to be bullish moving into Q4 and in early 2024.

Learn more: S&P Global Commodity Insights Agribusiness

Reporting and analysis by Sambit Mohanty, Philip Vahn, Jeremy Beaman, J Robinson, Miguel Cambeiro, Mark Chooi Kim Weng