Commodity Tracker: 4 charts to watch this week

Oil markets turn to US SPR talks, while European gas markets are focused on the flow of Gazprom's supply to Germany and Austria. Meanwhile, surging power prices in Europe equate to higher costs of green steel production.

1. White House hints at ongoing SPR talks with other oil consumers

What's happening? The White House said it continues to talk with other oil-consuming nations about options to ease high oil prices after OPEC and its allies ignored its requests for more supply. OPEC+ maintained Nov. 4 boosting crude output quotas by a 400,000 b/d for December.

What's next? S&P Global Platts Analytics forecasts looser balances in early 2022 that would alleviate the need for such a drawdown. The US Strategic Petroleum Reserve currently stands at 612.5 million barrels. While a coordinated international release of strategic oil reserves remains a possibility, Platts Analytics expects it to have only modest price impact. US Department of Energy's Energy Information Administration expects US retail prices for regular-grade gasoline to stay above $3/gal for the rest of the year. EIA releases its next short-term price outlooks Nov. 9.

2. Gazprom expected to pump gas to storage facilities in Germany, Austria

What's happening? All eyes will again be on Russia this week after President Vladimir Putin ordered Gazprom to begin restocking its storage sites in Germany and Austria from Nov. 8. Gazprom is set to complete its domestic storage injection program on the same date, potentially freeing up gas to flow into Europe to help fill the company's near-empty sites. Russian supply behavior has been key to the sharp rise in European gas prices over the past couple of months, with wild daily price swings and a record TTF day-ahead price of Eur116.10/MWh recorded on Oct. 5, according to Platts data.

What's next? Putin has twice made comments in recent weeks suggesting increased Russian flows, which have triggered sudden price drops. But it remains to be seen whether Russian flows this week do ramp up in line with Putin's request and, if they do, whether any extra gas will merely end up in storage and not be used to meet current European demand.

3. Market costs for green hydrogen-based steel higher on EU power price surge

What's happening? Steel made from green hydrogen electrolysis, supplied by renewable power, with iron ore pellets have seen market-based costs surge due to higher renewable power prices. Pilot plants in Sweden and Germany are testing ironmaking using hydrogen, with higher gas and power prices pushing up costs compared with steel produced from the blast furnace route, which mainly uses coal-based fuel. Costs for producing direct reduction iron (DRI) via green hydrogen and DR-grade pellets have been far higher than for natural gas-based DRI and pig iron, as overall cost increases for hydrogen-based steel expanded further during the second half of 2021, according to Platts calculations. This is due to the volume of hydrogen needed as well as renewable power prices, electrolyzer efficiencies and capex, using Platts PEM hydrogen assessment prices in the Netherlands.

What's next? Europe-based steel producers have announced multiple DRI plants across the region, which will use natural gas and hydrogen, depending on availability and pricing. At the same time, they are working with end-users in the automotive, construction, and consumer goods sectors to supply steel with low carbon intensity under terms to meet investments and higher energy costs, to help achieve broader regional emissions reductions targets. The European Commission is working on advancing an EU carbon pricing-based import tax on steel products. The EU wants to help make low-emissions steel more viable, with policies designed to help narrow current cost differences, stimulating the sector and by helping manage risks.

Further reading: Hydrogen: Beyond the hype

4. High oil prices stifle China's appetite for crude

What's happening? China's crude oil imports fell to a 39-month low of 8.94 million b/d in October, according to government data. Refiners from the world's largest crude oil importer refiners slowed down buying as the ICE Brent average in October stood at $83.71/b in October, 11.8% higher than the September average. This led refineries to cut their utilization to 81% in October, marking a five-month low, despite strong domestic demand for gasoil, Platts data showed. Meanwhile, independent refineries had to postpone cargo discharging due to delays in import quota allocation.

What's next? With low domestic stocks and new import quotas allocated by government in October, a Beijing-based analyst expects crude imports to rebound in November and boost crude throughput. Sinopec and PetroChina, the top two refiners in China, announced to run at full of their capacity in November to boost gasoil supplies. However, these supplies are not likely to hit regional markets as China's central government is urging state-run companies to ensure domestic energy supplies amid rising commodity prices.

Reporting and analysis by Meghan Gordon, Stuart Elliot, and Hector Forster