Commodity Tracker: 5 charts to watch this week

Platts OPEC+ survey by S&P Global Commodity Insights showed OPEC+ crude output fell in June, but the quota levels are still being exceeded. Meanwhile, most Russian crude exports are moved by tankers working outside G7's price cap. Dutch TTF natural gas pricing, power demand in the US and Indian I-REC markets are also in focus.

1. OPEC+ cuts output, but continues to produce above quota

What's happening? OPEC and its Russia-led allies cut crude output by 130,000 b/d in June, but member countries subject to production quotas produced 220,000 b/d above their target, the monthly Platts OPEC+ survey from S&P Global Commodity Insights showed July 9. OPEC production was up 10,000 b/d to 26.76 million b/d, while non-OPEC production fell 140,000 b/d to 14.11 million b/d. The group's combined output stood at 40.87 million b/d in June. A recent price rally has taken some of the pressure off overproducers, although Russia, Iraq and Kazakhstan are still expected to submit detailed plans to the OPEC secretariat to compensate for overproduction in early 2024. Platts, part of Commodity Insights, assessed Dated Brent at $86.67/b on July 15. Separately, OPEC lowered its estimate of demand for OPEC+ crude by 100,000 b/d for both 2024 and 2025 in its latest report.

What's next? Market watchers will track OPEC+ output volumes closely over the next few months, as the group continues to implement 2.2 million b/d of voluntary cuts through September. In addition to attempting to meet quotas, compensation plans by overproducers could also hit output volumes in the third quarter. The next meeting of the joint ministerial monitoring committee overseeing the agreement is scheduled for Aug. 1, followed by a full ministerial meeting Dec. 1. Ministers can call extraordinary meetings if market conditions warrant.

2. China, India not on board with G7 price cap enforcement for Russian oil

What's happening? More than 80% of Russian crude exports were transported by tankers operating outside of the G7's price cap in June. This was the highest since the trade restrictions came into force in December 2022, as Chinese tanker operators raised shipments to India. While G7 countries and the EU have been sanctioning shadow tankers as part of their price cap enforcement, China and India -- the world's No. 2 and No. 3 oil consumers -- are showing little appetite in full compliance.

What's next? While Indian refiners tend to buy Russian crude via spot deals, the country's petroleum minister, Hardeep Singh Puri, has said India was open to the idea of long-term contracts due to its bilateral ties with Russia. Such deals could reinforce continued cargoes flows from Russia to India in the foreseeable future, regardless of the results of the Ukraine conflicts, Commodity Insights analyst Nikesh Shukla said.

3. Dutch TTF month-ahead prices set to trend lower as EU gas storages approach tank top

What's happening? Natural gas prices peaked in October 2023 and subsequently declined until the end of the first quarter. However, the trend reversed as Europe sought to fill its storages over the summer season and compete against the Asian market to attract LNG cargoes into the continent.

What's next? LNG and natural gas prices are expected to weaken again when the EU's gas storages reach tank top during the third quarter. However, while market participants believe that the continent's storage sites are on track to reach full capacity before the end of October, and even earlier than in 2023, they estimate that the downward price trend will be limited by a tighter LNG market, which makes the European gas system highly sensitive to outages in Norway or the US.

4. Power demand, prices across US West rising along with temperatures

What's happening? A prolonged heat wave across the Western US is poised to keep temperatures soaring July 16-20, driving up power demand and wholesale electricity prices in the region. Peakload in California Independent System Operator and Bonneville Power Administration were trending above year-ago levels last week. Among notable power price swings seen in CAISO, the NP15 on-peak had averaged about $56.75/MWh as of July 10, climbing more than 41% from the same period a year ago, while SP15 had risen more than 35% above year-before levels, according to CAISO data.

What's next? Temperatures in the 100 F levels are forecast to continue throughout large portions of the West this week, and the US National Weather Service's long-range forecast shows a greater probability for above-normal temperatures for most of California, Idaho, Nevada, Oregon and Utah for July 20-26. These conditions could keep power demand and wholesale power prices elevated for the region.

5. Indian I-REC prices decline, issuance continues to exceed redemption

What's happening? The Indian International Renewable Energy Certificate market is experiencing oversupply in the second half(opens in a new tab) as issuances exceed redemptions. Demand growth lags supply, leading to lower prices, according to the International Tracking Standard Foundation registry data. Biannual redemptions increased by 39.5% year on year by late June, while issuances rose by 15.1%. Platts started assessments of wind and solar I-RECs(opens in a new tab) on April 23, with vintage 2024 experiencing a 25.4% decrease and vintage 2023 seeing a 27.9% decline in value. In comparison to end-2023, hydropower I-REC values for the current-year vintage dropped by 38%, while the previous-year vintage plummeted by 50.1% during this period.

What's next? With Indian government policies supporting the renewable energy market, issuance is expected to continue growing as companies monetize their renewable energy projects. On the demand side, market sources anticipated an uptick in the middle of the year as corporate buyers offset their half-year emissions. However, a significant price recovery seems unlikely due to the market's substantial surplus.

Reporting and analysis by Rosemary Griffin, Max Lin, Roudy Dirani, Ronnie Turner, Ahmad afiq Muhammad zahir