Commodity Tracker: 5 charts to watch this week

This week, S&P Global Commodity Insights editors and analysts are watching the market's reaction to OPEC+'s output cut announcement, the decline in seaborne coking coal prices and the strikes in France which are affecting nuclear production. Carbon prices and India's unified gas pipeline tariff reform are also in focus.

1. OPEC+ surprises market with oil output cut announcement

What's happening? OPEC+ surprised markets with a production cut announcement totaling 1.16 million b/d for May-June and 1.66 million b/d from July-December, including Russia's six-month extension of a unilateral 500,000 b/d reduction. Crude futures jumped early in the session Monday, with ICE June Brent futures contract touching $86.44/b following the announcement.

What's next? While S&P Global Commodity Insights analysts' end-March reference case already assumed a portion of the announced cuts, especially from Saudi Arabia and Russia, and full compliance is unlikely, particularly for Iraq and Kazakhstan, the reduction to May-December 2023 supply forecast is still likely to be a substantial 940,000 b/d or 630,000 b/d over the full year.

2. Australian coking coal finds opening in Chinese market after prices decline

What's happening? Coking coal prices in seaborne markets have declined, moving closer to China CFR import prices at the end of March. A recovery in coal availability led by Australia pressured FOB spot prices down from recent highs, with China CFR pricing for premium low-volatile coking coal becoming more viable for trade. China recently lifted import restrictions on Australian coals, while earlier price trends did not support allocating coking coal for this market after initial cargoes early this year. The movement in seaborne prices led to more inquiries end-March and a new booking for Australian coking coal for China.

What's next? With the drop in seaborne prices to incentivize use, China may increase imports of coking coal -- provided buyers can secure import permits. China also suspended the planned April 1 return of its coking coal import tariffs applied to North American and Russian coals, for further review end-2023, which may boost trade. Australian coals were not subject to tariffs under a regional trade accord. However, China now remains more reliant on Mongolian and Russian imports with stronger availability and lower pricing due to sanctions on Russian coal. Higher contract volumes of Australian and US coals into India and other markets may limit forward availability for China, even as some buyers try to secure high quality, low impurity coal imports.

Watch: Pricing impact of China's resumption of Australian coking coal imports

3. French nuclear power may face another year of underperformance

What's happening? French power generator EDF extended its strike warning by a week on March 30 and delayed reactor returns from maintenance. The strikes, now entering a fifth week, are likely to dent French nuclear output by more than 3 TWh. Furthermore, EDF has now lost 14 weeks of maintenance opportunity across 10 reactors since March 17, implying delayed returns later in the year when the power will really be needed.

What's next? Once again, risks are rising that Europe's major source of baseload low-carbon power will underperform as the continent strives to minimize the need to burn Russian gas. Analysts at S&P Global have now lowered their nuclear generation forecast for the remainder of 2023 by an average 1.5 GW. This would pull annual output down to 306 TWh versus EDF's 300 TWh-330 TWh estimate for 2023. The market has responded, with French calendar 2024 power prices up 40% since early March.

4. Voluntary carbon markets hope to restore trust with release of Core Carbon Principles

What's happening? The Integrity Council for the Voluntary Carbon Market finalized its Core Carbon Principles on March 30, bringing some much-needed clarity as to what constitutes a high-quality credit. This effort comes at a time when the credibility of voluntary carbon credits has been under public scrutiny. The CCPs include 10 codes, that are broadly based under three groups: governance; emissions impact and sustainable development. These will help identify carbon credits that "create real, additional and verifiable climate impact with high environmental and social integrity, based on sound science and evolving best-practice," according to the ICVCM. Prices especially for nature-based credits have recently sunk to record-lows and many buyers have laid low amid a plethora of articles by news media and academia questioning whether several offsets represent genuine carbon reductions.

What's next? Such integrity initiatives are expected to bolster market confidence and could boost prices of some credits. The ICVCM will publish the category-level Assessment Framework in Q2 and will initiate its assessment of carbon-crediting programs shortly after. CCP-eligible programs and CCP-approved categories will be announced in Q3, enabling approved carbon-crediting programs to issue the first CCP-labelled carbon credits soon after. Analysts at S&P Global expect the publication of the credit-type principles in Q2 to "create some long-term turbulence in the market, giving rise to potential distortions between different credit types."

5. India approves unified gas pipeline tariff reform

What's happening? India's oil regulator PNGRB has approved a unified gas pipeline tariff. In a March 29 announcement, the PNGRB said a unified tariff of Rupee 73.93 ($0.90)/MMBtu for all interconnected gas transmission pipelines owned and operated by authorized entities – Indian Oil Corporation Limited, Oil and Natural Gas Corporation Limited, GAIL (India) Limited, Pipeline Infrastructure Limited, Gujarat State Petronet Limited, Gujarat Gas Limited, Reliance Gas Pipelines Limited, GSPL India Gasnet Limited and GSPL India Transco Limited – came into effect April 1.

What's next? The PNRGB's move is expected to improve price transparency, boost gas-related infrastructure, and expand access to remote areas of the country. On top of the tariffs, sources said a system of incentives to regulate the National Pipeline in the interest of the consumers was also needed. Despite firm demand, India's natural gas net production is edging up slowly, partly because some of its gas fields are old and aging. At the India Energy Week held in Bengaluru in February, Prime Minister Narendra Modi said that India's gas demand would grow over 500% in the foreseeable future as the country had set a target to raise the share of gas in the country's energy mix to 15% by 2030, from about 6%.

Reporting and analysis by Paul Sheldon, Hector Forster, Henry Edwardes-Evans, Andreas Franke, Eklavya Gupte, Surabhi Sahu