Energy and commodity highlights: Tropical storm Barry, UK-Iran tanker spat, Asian LNG demand

As Tropical Storm Barry approaches the US Gulf Coast, offshore oil and gas producers, refineries and ports have been shuttering facilities in preparation. Utilities are also on alert.

As of July 11, US offshore drillers have shut 1 million b/d (53%) of Gulf of Mexico oil production and 1.2 Bcf/d (45%) of natural gas output.

The US National Hurricane Center expects Barry to reach hurricane strength late July 12, or early the next day, and make landfall in Louisiana. The storm could slow US oil and LNG exports if terminals and shipping operations are interrupted.

Oil markets have responded by sending Brent crude prices higher, with sentiment also bolstered by rising tensions between the UK and Iran.

The UK government said July 11 that Iranian vessels attempted to impede the passage of a BP-owned tanker in the Persian Gulf. The Iranian ships turned back after a British navy frigate accompanying the tanker intervened.

Elsewhere, agricultural markets are monitoring progress in crop cycles, with mixed news from southern hemisphere harvests.

The soybean harvest in Argentina for the 2018-19 crop year that started in September was 100% complete as of July 3. Total soy production reached 56 million mt, up 48% year on year, according to the Buenos Aires Grain Exchange. Argentina’s corn crop is also expected to break records at 49 million mt – the harvest is now nearly 50% complete.

Australian wheat faces a tougher scenario, after a third straight year of below-average production. The smaller crop is likely to drive higher domestic prices and leave Australia vulnerable to competition from the Black Sea.

GRAPHIC OF THE WEEK

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VIDEO: ASIAN LNG

After weak LNG demand in the first half of the year, support could be coming in the second half,  as both Japan and South Korean nuclear output is expected to follow year-ago levels moving forward. S&P Global Platts LNG Analytics Manager Jeffrey Moore looks at supply and demand fundamentals affecting shipments to northeast Asia.

PETROCHEMICALS

The outlook for the polyethylene market globally is bearish for the remainder of the year due to a combination of weak feedstock costs, weak global demand and anticipated plant startups, according to market participants.

METALS

Workers at ArcelorMittal Italia started full strike action in the early hours of July 11 for an indefinite period, on grounds of safety, and are taking action to bank the Taranto works' blast furnaces Nos. 2 and 4.

OIL

Saudi Arabia's balancing act of extending the OPEC/non-OPEC output cuts into the first quarter of 2020 and maintaining economic growth is being tested by weaker oil prices, with concerns of a potential economic contraction.

LNG

US LNG feedgas demand is trending near record-high levels this month as newly minted liquefaction facilities along the Gulf Coast continue to ramp up, despite narrow margins for export profit. In July, gas demand from the six operational US export facilities has averaged nearly 6.2 Bcf/d.

THE LAST WORD

– Kotaro Nogami, deputy chief cabinet secretary in the Japanese government, addressing press on the recent incidents in the Persian Gulf. Japan appears to be keeping its options open as the US calls on other states to join a coalition to defend the Strait of Hormuz.