Commodity Tracker: 5 charts to watch this week

Oil markets are in focus this week, with stakeholders looking out for the potential impact of the bank turmoil, China's demand rebound and the strengthening energy relationship between Beijing and Moscow.

1. OPEC, traders adopt wait-and-see approach as bank turmoil hits oil markets

What's happening? The collapse of Silicon Valley Bank in the US and emergency takeover of Credit Suisse with the help of Switzerland's central bank have helped to push crude lower. Platts, part of S&P Global Commodity Insights, assessed Dated Brent at $71.705/b March 20, down almost 15%, or $11/b, since SVB's shares collapsed after it announced losses March 9. The sudden fall in oil prices is reminiscent of the events marking the beginning of the last major banking crisis when HSBC in February 2007 unexpectedly revealed losses from the US subprime mortgage market.

What's next? Oil traders said it is too soon to predict(opens in a new tab) the current uncertainty hitting banks turning into an economic contagion on a scale of what was seen in 2008. OPEC, for its part, is likely to wait for more data to emerge before jumping to any conclusion. In its latest oil market outlook published March 14, just days after the collapse of SVB, the OPEC Secretariat downgraded its estimate of how much crude the producer group would need to pump to balance the market, despite increasing its forecast for Chinese demand.

2. ... while IEA expects oil market balance to tighten sharply on China rebound

What's happening? The International Energy Agency raised its oil demand forecast for 2023(opens in a new tab) by a further 100,000 b/d on Mar 14, pointing to an expected surge in jet fuel demand later this year as China continues to lift its strict COVID-19 travel curbs. In its latest monthly oil market report, the Paris-based energy watchdog said it now sees global oil demand averaging 102.02 million b/d in 2023, 2 million b/d higher than in 2022. The gains will accelerate over the year, however, rising to 2.6 million b/d year-on-year in Q4, from 710,000 b/d in the current quarter, the IEA estimates.

What's next? Even assuming that OPEC+ unwinds its COVID production cuts this year, the oil market balance is set for a significant tightening during the second half of the year, according to the IEA. With the market flipping sharply into a supply deficit during the second half of the year, the IEA sees, stock draws of up to 1.8 million b/d in Q4 to fill the gap.

3. China, Russia boost energy ties with Xi-Putin meeting

What's happening? China's crude oil imports from Russia surged to a record high(opens in a new tab) of 2.01 million b/d, or 7.69 million mt, in February, General Administration of Customs data showed March 20, lifting the share of the non-OPEC supplier to nearly one-fifth and setting the stage for further energy cooperation as Chinese President Xi Jinping meets his Russian counterpart Vladimir Putin this week. The February import volume from Russia surged 42% year on year and was 33.1% higher than shipments from second-largest supplier Saudi Arabia at 1.51 million b/d.

What's next? As China continues to snap up attractively priced crudes shunned by western countries, imports of Urals crude from Russia are likely to hit a 33-month high in March, with PetroChina and independent refineries both seen to receive hefty deliveries. The uptrend is expected to continue in the coming months.

4. India's coal- and gas-fired power plants on alert

What's happening? On March 7, India's Union Power Ministry asked electric utilities to ensure that there is no load shedding during the key summer months. All coal-fired power plants using imported coal are instructed to run at full capacity from March 16, and 5 GW of gas-fired power plant capacity must run in April and May. Furthermore, the government also gave instructions for maintenance schedules for power plants and availability of coal supply.

What's next? These preparations should help India to handle its peak thermal demand period in April and May. India has experienced high power demand growth so far this year, with 14% year-on-year growth in February, due to warmer-than-normal temperatures. Thermal power demand is likely to increase until the monsoon season starts sometime in May.

5. Bullish outlook drives US HRC market

What's happening? Steel hot-rolled coil prices in the US continue to see weekly gains in 2023 after dropping over 50% from April to November of last year. Since last November, domestic steelmakers have raised their offer prices multiple times amid longer lead times(opens in a new tab), lower imports, and a bullish market outlook(opens in a new tab) despite macroeconomic uncertainties. Steel producers announced their latest round of increases last week, with one industry leader setting a base minimum price of $1,200/st for HRC.

What's next? The Platts assessment for US HRC reached $1,150/st last week, according to S&P Global data. Further steel mill offer hikes could be forthcoming. Market participants will monitor whether prices can be sustained at the elevated levels and if a price ceiling will be hit.

Reporting and analysis by Andy Critchlow, Robert Perkins, Herman Wang, Oceana Zhou, Andre Lambine, Nick Lazzaro