Commodity Tracker: 4 charts to watch this week

Recent attacks on ships in the Red Sea have led to an increase in eastbound dirty tanker risk premiums and also strengthened Russia's position as the leading supplier of high sulfur fuel oil in Middle East. Turning to climate and cleantech, demand for carbon credits is in focus, and the UK looks ahead to a major offshore CCS project.

1. Eastbound dirty tanker risk premiums climb for Red Sea transit

In the light of recent attacks on commercial vessels in the Red Sea, West-of-Suez dirty tanker operators are

. As a result, eastbound Suezmax transits via the Red Sea are now commanding a premium over the longer Cape of Good Hope passage, with the limited number of vessels willing to make the journey driving up freight rates. Still, some ships carrying Russian or Libyan oil, for example, may be more willing to take the risk of a passage via the Red Sea, with some shipowners enticed by the faster redeliveries and higher lumpsum payments associated with the route.

What's next? Vessel inquiries from cargo owners and vessel operators' risk appetite will shape the market sentiment. Any signs of normalization in the Red Sea could reduce aggregate ton-mile demand and have a bearish impact on dirty tanker rate expectations. Conversely, any further escalation could lead to more crude flow displacement, increased insurance costs and wider freight risk premiums.

2. Red Sea disruptions reinforce Russia as lead Middle Eastern HSFO supplier

Reluctance among European shipowners to sail through the Red Sea has put pressure on a once well-established fuel oil arbitrage to the Middle East. As the region approaches peak power demand season for summer air conditioning, it has increasingly

, consolidating a shift that began after the war in Ukraine. In May, around 215,800 b/d high sulfur fuel oil was exported from Russia to the Middle East, dwarfing small volumes from the Mediterranean, while no cargoes have left Northwest Europe since March.

What's next? The influx of Russian supply to the Middle East limits the European market's ability to benefit from summer export demand for HSFO. Even if exporters are willing to navigate the Red Sea, ample stocks will burden the area, hindering any pull from the region in the months ahead. Meanwhile, new East of Suez supply hubs have gained prominence, with record exports from Pakistan supporting HSFO prices in Singapore.

3. VCM slows in May, awaiting ICVCM decisions

What's happening? Demand for voluntary carbon credits dropped 50% month on month in May to 6.5 mtCO2e, the lowest level observed this year. The decline may have been due to quality-conscious buyers awaiting an explicit announcement by the Integrity Council for the Voluntary Carbon Market on which crediting methodologies could generate high-quality carbon credits. After several delays, the announcement was made in early June. Methodologies from the industrial pollutants and methane collection categories were selected as the first to be eligible to obtain the ICVCM's Core Carbon Principles label.

What's next? S&P Global Commodity Insights analysts anticipate an increase in retirements of eligible credits, which are expected to command a price premium to unlabeled credits. However, much remains uncertain for the market with the Science Based Targets yet to confirm its guidance on carbon credit use for corporates and persistent regulatory risks.

4. UK test CO2 injections for CCS on the horizon

What's happening? The planned Poseidon carbon capture and storage project in the UK's Southern North Sea will start offshore injection tests in early December. The test injection will last for three months. Poseidon will store up to 40 million mt/year CO2 in its full development stage, with operations planned to start by 2029 and total storage capacity of 1 billion mt of CO2. The transportation of CO2 will be facilitated via the Perenco-operated Bacton gas terminal to the offshore storage site in the Leman gas field, around 65 km off the coast.

What's next? Project partners Perenco Carbon Catalyst and Wintershall Dea aim to take a final investment decision in 2028. The UK is targeting 20 million-30 million mt/year of CO2 storage by 2030, rising to over 50 million mt/year by 2035.

Reporting and analysis by Nikolaos Aidinis–Antonopoulos, Kelly Norways, Dana Agrotti, James Burgess