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Crude Oil, Refined Products, Diesel-Gasoil, Jet Fuel
October 22, 2024
Featuring Staff
HIGHLIGHTS
What's happening? Global oil demand will decline faster than expected in the coming decades -- creating a likely supply surplus -- as electric vehicles continue to erode oil use in road transport, while biofuels and hydrogen deflate the need for oil in the aviation and shipping sectors, the International Energy Agency said Oct. 16. After increasing by about 2.6 million b/d from 2023-30, global oil demand will peak by 2030 and fall to 93.1 million b/d by 2050, according to the base-case scenario in the IEA latest annual World Energy Outlook. The new 2050 demand projection is 4.3 million b/d lower than last year's report.
What's next? With transport oil demand increasingly shifting from oil to electricity and alternative liquid fuels in the coming years, the IEA warned that the energy market upheaval is "wrong-footing oil producers," predicting a potential overhang of oil and LNG supply in the second half of the 2020s. With a potential supply glut emerging, the IEA estimates that the oil price needed to balance demand and supply will fall to $58/b in 2050 under its central scenario.
What's happening? The IEA forecasts a significant increase in global LNG export capacity, rising from 580 Bcm/year currently to 850 Bcm/year by 2030, which may exceed demand and pressure supplier finances. This oversupply could lead to lower international gas prices, intensifying competition among suppliers. As of mid-2024, one-third of the 160 Bcm of LNG capacity under construction remains uncontracted, pushing suppliers toward price-sensitive markets.
What's next? While lower prices may hasten the transition from coal and oil to gas in Asia, uncertainties in gas demand, particularly in the power sector, pose challenges. The IEA's revised projections indicate a rise in gas demand, particularly in China and the Middle East, while renewable gases are expected to grow significantly by 2050. Despite potential price increases, many LNG projects may struggle to recover costs.
Further reading: LNG market evolution gathers pace(opens in a new tab)
What's happening? Asian refiners are concerned about potentially higher Chinese middle distillate exports in the fourth quarter, as weak industrial demand and oversupply from South Korea have driven down crack spreads. South Korea has significantly boosted its gasoil and jet fuel exports, contributing to this oversupply and negatively impacting refining margins. Analysts said if Chinese refiners fully utilize their export quotas, the market could face further pressure. Recent data shows that many regional refiners posted either losses or much smaller net profits in the first three quarters largely due to weak crack spreads.
What's next? Traders anticipate that China may reduce gasoil exports in the short term to prioritize higher-margin products like gasoline and jet fuel. Exports for October are expected to be around 230,000 mt of gasoil, significantly lower than gasoline exports. Despite the potential for reduced gasoil exports, Chinese firms are expected to fully utilize their allocated export quotas due to ongoing weak domestic demand. The widening price spreads between export and domestic prices may incentivize continued exports from Chinese export quota holders with limited retail outlets.
What's happening? The UK government on Oct. 17 blacklisted 22 oil and LNG tankers involved in Russian energy trade in its largest clampdown on shadow tankers to date. The total number of UK-sanctioned oil tankers has now reached 43. The latest action is mainly aimed at undermining Russia's ability to sell sanctioned energy products to build its war chest against Ukraine. The G7 and EU have established price caps for Russian oil while sanctioning the Arctic LNG 2 project. S&P Global Commodities at Sea and Maritime Intelligence Risk Suite data suggested the share of Russia's seaborne crude export reached 83.8% in September, the highest since December 2022 when the crude price cap took effect.
What's next? Russia has amassed a large tanker fleet to transport oil to circumvent Western measures while starting to do something similar on the gas side. This suggests Western governments could continue to struggle to effectively enforce their sanctions.
Further reading: Russia: cracking the sanctions code(opens in a new tab)
What's happening? Australian premium hard coking coal prices have rebounded from multiyear lows, supported by demand from China after Beijing announced stimulus measures and followed by a rise in steel prices. The benchmark Platts Premium Low Volatile Hard Coking Coal price on an FOB Australia basis has increased by 12.2% or $22/mt at $202/mt Oct.21, since hitting over three-year low at $180/mt Sept. 10. PLV CFR China prices increased by $21.5/mt, or 11% at $216.5/mt Oct. 21, having also hit a more than three-year low at $195/mt Sept. 10.
What's next? Market participants are now waiting for the implementation of China's stimulus package, as well as for other economic measures, and post-holiday orders from Indian buyers after the end of October to propel coking coal demand. The market is also keeping an eye on a potential La Nina event that could ignite supply-side concerns.
Reporting by Robert Perkins, Hassan Butt, Philip Vahn, Joshua Ong, Oceana Zhou, Daisy Xu, Max Lin and Sumita Layak
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