Commodity Tracker: 6 charts to watch this week

Russia's crude production fell to its lowest since May 2022, but remains short of hitting its output cut targets. The country's tankers, which are operating outside G7 price mechanism, are refueling in European waters. On another note, bottlenecks at the Panama Canal may soon be alleviated as drought conditions improve.

1. Russia cuts crude output but misses OPEC+ target

What's happening? Russia's crude output fell to its lowest level since May 2022 in April, as it started to implement a deeper voluntary production cut. Output is also falling as Ukrainian attacks on Russian refineries continue and flooding hit some oil producing areas. Russia produced 9.29 million b/d in April, missing its target of 9.099 million b/d, but cutting 130,000 b/d month on month, the Platts OPEC+ survey by S&P Global Commodity Insights found. Platts is part of Commodity Insights. Overall OPEC+ produced 249,000 b/d above quota in April, as several other countries missed their targets.

What's next? OPEC+ ministers are scheduled to meet June 1 to discuss current market conditions, output quotas and potential baseline revisions. Until this meeting, statements from OPEC+ officials will be closely watched for any signs of policy changes. Commodity Insights expects OPEC+ to extend existing voluntary cuts beyond their current expiration at the end of June. OPEC+ is implementing cuts in a bid to boost oil prices, which have fallen recently. Platts assessed Dated Brent at $82.115/b May 13 – down from above $93/b in early April.

2. Russia's stealth oil tankers refueling in European waters as EU mulls new curbs

What's happening? Russia's growing fleet of "shadow" tankers transporting its oil outside the G7's price cap mechanism is being refueled in European waters(opens in a new tab), according to tanker tracking data, amid fresh calls to further clamp down on rampant evasion of sanctions designed to hit Moscow's oil revenues. At least 3,100 refueling, or bunkering, operations involving shadow tankers were observed off European member states the UK, and Norway over the 12 months to April 30, according to S&P Global Commodities at Sea data. Waters off Malta and Greece saw the greatest shadow fleet bunkering activity, making up 45% of the total observed activity.

What's next? The practice of refueling tankers carrying Russian oil is not currently prohibited in EU ports or territorial waters as long as the crude or oil products were purchased below the price cap and are en route to a third country. But with growing public scrutiny over the boom in "grey" Russian oil trade, the European Commission is considering banning EU ports from assisting vessels participating in "energy transport contrary to the objective of reducing Russia's revenue in this sector, " according to recent reports cited a draft proposal for the EU's 14th sanctions package against Russia.

3. Weak momentum, lack of demand continue to soften Atlantic Supramax scrap market

What's happening? The Atlantic Supramax scrap market witnessed a weak momentum as the lack of fresh demand kept the spot levels under pressure for the week of April 29-May 3. In the Continent and Baltic Sea regions, scrap spot rates pushed down as activity was limited and the tonnage list increased. Platts assessed the 40,000 mt Rotterdam-Aliaga scrap route at $19.25/mt on May 7, down 4% week on week. In the North Atlantic, US East Coast trans-Atlantic tonnage supply sustained balanced. Platts assessed the 40,000 mt New Jersey-Aliaga scrap route at $25.25/mt on May 7, unchanged week on week.

What's next? Shipments of scrap cargoes and steel products via Supramax-Ultramax vessels from Northwest Europe, the Baltic Sea and the Russian Baltic regions to Turkey and Turkish ports remain stagnant. The overall sentiment remains negative, with further pressure on rates expected due to persistent fundamental imbalances between fresh cargoes in the market and tonnage supply.

4. Drought improvement bids Panama Canal transit revival

What's happening? The end could soon be in sight for the shipping bottleneck at the Panama Canal, where a drought response policy has limited daily transit numbers since 2023 to conserve water. Water levels at the Gatun Lake, which feeds the canal, were at 80.5 feet May 5, up from levels below 80 feet in November 2023 but still below the five-year average, according to the Panama Canal Authority. By July, the reading should be back about 82 feet, the ACP projects, allowing daily transits to increase from 24 to 32 from June 1.

What's next? Relaxed restrictions remain subject to observed weather conditions, the ACP has stressed, though increased transits could deflate freight costs for cargo currently being rerouted around the Cape of Good Hope to avoid the canal. LNG tankers and clean tanker flows are expected to be among the first to return to the canal, while remaining weight and draft restrictions could deter containers and dirty freight. In the long term, there are plans to maintain a booking-and-auction model for transit slots, while increasingly volatile weather conditions remain an underlying threat.

5. Platts JKM prices stabilize below Brent oil-linked contracts, prompting market discussions

What's happening? Since January, the price of Platts JKM, the benchmark reflecting LNG delivered to Northeast Asia has fallen below Brent oil-linked long-term contract prices. This had made spot LNG cargoes priced against JKM, more competitive than term supply with Brent oil pricing slope at 13.5% on average. This disparity in prices has sparked discussions in the market regarding the renegotiation of term contracts agreed upon in 2022-23 but not yet finalized into sales and purchase agreements. It has also led to exercising of Downward Quantity Tolerance by Asian buyers who found it more economical to replace term supply with spot cargoes.

What's next? Industry players noted that buyers have not only been asking for lower price slopes for new contracts but also driving a hard bargain to finalize LNG contracts that already have binding term sheets, at prices around 12% of Dated Brent or even lower. As buyers become increasingly aware that LNG market fundamentals are not necessarily aligned with global crude oil prices, which are more susceptible to geopolitical risks, there is a growing interest in diversifying price exposure. Consequently, buyers are considering signing more contracts that are not linked to oil.

6. Floods in Brazil threaten agriculture output in Rio Grande do Sul

What's happening? A severe flood in Brazil is putting pressure on key agricultural output from Rio Grande do Sul, which was expected to produce 70% of the country's rice and 15% of its soybean output in marketing year 2023-24. While damage to rice is still being assessed, market sources expect a reduction of 3 million-5 million mt in the state's soybean production. Infrastructure damage has halted exports from the region, affecting Brazil's promising crop campaigns in the current marketing year. Prices have been stable since April 26, owing to the halt in rice export.

What's next? Brazil heavily relies on barges for its exports. Prices could see an upward pressure in the coming days if infrastructural challenges persist or shipments are re-routed through other ports. In addition, trade prospects will also reflect a reaction from the delay in the ongoing harvest of crops. A stagnant trend is expected to continue until outflows begin.

Reporting and analysis by Rosemary Griffin, Robert Perkins, Konstantinos Frentzos, Kelly Norways, Melody Li, Shivam Prakash