Commodity Tracker: 4 charts to watch this week

This week, Vietnam looking to set up its first strategic petroleum reserve forms our top story for Commodity Tracker. S&P Global editors also focus on PCI coal prices being hit by lower steel output and rising regional competition denting Fujairah's status as a bunker hub.

1. Vietnam to build reserve units for crude, oil products

What's happening? Vietnam aims to build several new facilities to store crude and oil products for state reserves to ensure energy security in the years to come. Hanoi will consider building SPR units with a total capacity of up to 2 million mt, or around 14.7 million barrels, of crude and 500,000 cu m, or around 3.1 million barrels, of oil products by 2030, under the current 2021-2030 national infrastructure plan for oil and gas reserves.

Hanoi's decision to pursue the project comes amid OPEC and its alliance members maintaining a tight supply stance, in addition to a volatile dong and benchmark oil prices.

What's next? State-run oil and gas company PetroVietnam will likely fill the new SPR units primarily with Kuwaiti sour crude and domestic low sulfur Bach Ho crude as the two grades form the staple diet for the country's refining industry, trading sources said. The state oil products reserves will likely be filled with locally-produced diesel and South Korean oil products as domestic consumers are familiar with transportation fuels produced by major South Korean refiners, industry sources said.

2. PCI prices fall, could decline further without support from steel

What's happening? The prices of PCI coal have weakened relative to coking coal on stable-to-lower steel production levels. PCI, which is used to reduce met coke consumption rates, saw spot prices fall to 70% of the price of premium low-vol hard coking coal on July 20, both on an FOB Australia basis. PCI prices had earlier been better supported by trade restrictions on Russian PCI in several markets boosting contracted volumes, and tighter Australian supplies earlier this year as heavy rain impacted shipments.

What's next? PCI coal prices have fallen back to longer-term ratios to coking coal, and further changes will depend on steel, coal and trade fundamentals. Russian PCIs have become more competitive, reducing demand for Australian and Canadian PCI in several Asian markets.

The price of PCI grade may return to 60%-70% of that of coking coal, as seen in 2018-2020, unless there is tighter production and stronger-than-forecast consumer demand, which is not expected by the steel industry. Economic stimulus could affect steel markets and prices, boosting utilization and demand for additional PCI coal and iron ore pellets to maximize steel output.

3. Rising competition to chip away at Fujairah's bunker hub status

What's happening? Bunker demand at Fujairah has been dented by macroeconomic headwinds and the emergence of alternative refueling options at strategic locations around the Middle East while stockpiles have remained ample. Fujairah's bunker sales totaled 3.617 million cu m in the first six months of 2023, down 10.5% from January-June 2022 and 9% below the same period in 2021, based on data from the Fujairah Oil Industry Zone and S&P Global Commodity Insights. Regional tensions with Qatar have also reduced Fujairah's bunker demand.

What's next? Trade sources highlighted rising competition among domestic players that could chip away at Fujairah's status as bunker hub. Fuel oil cargoes of sanctioned origins are more likely to find their way into floating storages situated around Khor Fakkan due to less stringent regulatory oversight, while the likelihood of future LSFO imports pressuring the already-adequate inventories could further weaken sentiment in Fujairah's downstream market, traders said.

4. West of Suez MR rates rebound sharply on arbitrage demand

What's happening? The West of Suez Medium Range clean tanker freight rate for the UK Continent trans-Atlantic voyage has rebounded sharply after hitting w110 July 17, its lowest level in 19 months, amid increased import demand from the US, West Africa and Brazil.

Ample tonnage availability had built up in the Amsterdam-Rotterdam-Antwerp region in recent weeks, which led to the UK Continent-US Atlantic Coast MR freight bottoming out at w110. The low freight cost made the trans-Atlantic gasoline arbitrage trade very profitable, and so a significant number of gasoline cargoes was injected into the market by traders. Tonnage reduced quickly as a result and in turn strengthened freight rates.

What's next? The demand from Nigeria and Brazil for European gasoline will likely remain strong. Tonnage in the ARA hub will tighten significantly as the market has already grown more balanced. MR freight is expected to remain firm or even go up further in the next few days due to robust demand for gasoline arbitrage trades.

Reporting and analysis by Philip Vahn, Hector Forster, Nicholson Lim, Andrew Toh, Lei Zhong