Commodity Tracker: 5 charts to watch this week

The Middle East oil rig market is shifting as Saudi Arabia halts production expansion, leading to a decline in jackup rig day rates. Concurrently, Singapore's low sulfur fuel oil premiums face pressure, while European ammonia producers contend with rising production costs.

1. Middle East oil rig market shifts

What's happening? Saudi Arabia's decision to halt its oil production capacity expansion has led to a suspension of 33 offshore rigs, with many redeployed globally. This movement has resulted in a 21% decrease in average day rates for premium jackup rigs. The Middle East jackup day rates fell below the global average in February 2024, with the Middle East rate at $102,250/day in January compared to the global average of $122,733/day. This shift is impacting regions like Southeast Asia and West Africa, as rigs are relocated to these areas.

What's next? The current situation is seen as a slowdown rather than a downturn. While day rates have decreased, contracted activity remains stable. Oil and gas producers like QatarEnergy and Abu Dhabi National Oil are capitalizing on lower rates. Aramco's offshore rig count may rise to 65 from the current 58, but won't reach the previous peak of 90. High-specification jackup rigs for gas projects remain costly, at $140,000-$150,000/day. Saudi Arabia may ease exploration spending, while the global rig count is about 500, with ADNOC operating 35 jackups. Middle East rig service terms range from five to 15 years.

2. Singapore's LSFO premiums under pressure

What's happening? Low sulfur fuel oil premiums in Singapore have decreased due to moderated demand expectations following the Lunar New Year, leading to increased competition and narrower profit margins Platts, part of S&P Global Commodity Insights, assessed the Singapore-delivered marine fuel 0.5%S bunker premium over the benchmark FOB Singapore Marine Fuel 0.5%S cargo at an over eight-month low of $9.66/mt on Feb. 17, down 6 cents/mt day over day. Suppliers' margins have shrunk, with barging spreads averaging $5.11/mt from Feb. 3-13.

What's next? Despite a predicted 1.6-1.7 million mt of LSFO from the Western Hemisphere heading to Singapore, replenishment flows from Brazil and Southeast Asian refineries may keep inventories stable. Singapore's heavy distillate stockpiles increased by 4.3% to 20.1 million barrels as of Feb. 12. Regional competition, particularly from Zhoushan, could intensify as trading activity recovers, with suppliers potentially offering LSFO aggressively. Price spreads between Singapore and Zhoushan have widened, averaging $8/mt in February. Singapore currently has 40 licensed bunker suppliers, following the termination of Sentek Marine & Trading Pte Ltd.'s licenses.

3. European ammonia production cost outstrips price of imported tons

What's happening? European ammonia producers are being squeezed as the cost of ammonia production soars, driven by high feedstock costs. Platts estimate for the total cost of production, including carbon costs, hit almost $660/mt on Feb. 10 as the front-month Dutch natural gas price reached its highest point in two years. Import ammonia prices, however, have yet to see a similar bump, as buyers try to wait out the storm. The same day, Platts assessed its CFR Northwest Europe duty paid/duty free ammonia spot price at $585/mt.

What's next? Sources expect the negative spread to push European players to scale back domestic ammonia production and seek additional cargoes from international supply hubs. Fertiglobe CEO Ahmed El-Hoshy, noting the price disparity on the company's Q4 earnings call on Feb. 10, said it anticipated "shutdowns imminently."

4. Acetone prices expected to rise amid supply tightness, demand uncertainty

What's happening? There have been mixed reports from players of a minor pick-up in demand for acetone in recent weeks, stimulated by a shift from a long to balanced market amid closed arbitrage from Asia. The depletion of available import material in the market has also been exacerbated by the settlement of the February contract price for propylene at a Eur52.50/mt premium to January, causing some customers to move from contract to spot.

What's next? Poor demand for phenol could push acetone prices up further as producers face tighter production margins and reduce operations to minimum rates. Market players also await a pick-up in demand during coating season, although this has failed to meet expected levels in the last two years.

5. Brazil's high diesel truck registrations rises

What's happening? Truck registrations this January increased 14.5% compared with January 2024, totaling 9,400 licensed trucks, data released by the National Association of Automotive Vehicle Manufacturers Feb. 10 showed. Registration data for all vehicles -- heavy and light -- showed this was the highest volume in January since 2021, with 171,200 vehicles licensed, a 6% increase compared with January 2024.

What's next? A strong harvest season in Brazil in the first half is likely to drive demand for diesel truck registrations, Eduardo Freitas, vice president of Anfavea, said Feb. 10.

Reporting and analysis by Claudia Carpenter, Nicholson Lim, Matt Hoisch, Mollie Gorman, Luke Warren and Bruno Magalhaes.