Commodity Tracker: 4 charts to watch this week

US oil policy under a Biden administration, EU natural gas trends and China crude imports are in the sights of S&P Global Platts editors in our regular roundup of key energy and raw materials trends.

1. US oil sector faces ban on new federal land drilling after Biden election win

What's happening? Joe Biden's victory in the US presidential election could bring significant changes in US oil policy. Biden has proposed to ban drilling on federal leases. The majority of the US oil leases are on private land, but New Mexico (NM) and the US Gulf of Mexico (GOM) would be the most affected since they have a significant portion of federal leases. Well permitting on federal lands has increased significantly in anticipation of the potential policy change. Nearly 2,000 wells have been approved year-to-date, 46% higher relative to 2019 levels. Biden has stated that he will honor existing permits but will likely not allow new ones. S&P Global Platts Analytics(opens in a new tab) expects the reduction in drilling will result in a loss of approximately 1.1 million b/d by the end of 2024 versus the reference case.

What's next? Assuming President Donald Trump fails in his series of legal and administrative challenges, it will take a few months for the new administration to further define the change in policy and lay out all the needed rules. Also, it is likely that lease operators will try to challenge implementation of the new rules in the US court system.

Go deeper: Podcast - US energy outlook under Biden White House(opens in a new tab)

2. Europe's lockdown-driven "double" heating creates gas demand upside risk

What's happening? October local distribution company gas demand in Northwest Europe outturned 7-8% higher than the estimated level based on historical consumption and temperature data. The current working-from-home requirements may explain this demand uplift. While offices generally remain open at low capacity, many people are still working from home, which duplicates heating consumption.

What's next? Many NWE countries moved to a broader lockdown in the last week of October due to rising incidence of coronavirus. While this will exert downward pressure on commercial heating demand, we do not foresee a decline in LDC consumption as severe as that experienced during the first lockdown. This is because increased levels of home working will continue to strengthen residential heating demand(opens in a new tab).

3. British gas premium to Netherlands attracts higher Norwegian flows

What's happening? Norwegian gas exports to the UK rose sharply last month(opens in a new tab) to 2.64 Bcm – the highest level since March and almost double the volumes supplied in September – according to data from S&P Global Platts Analytics. At the same time, Norwegian gas exports to the Netherlands and Germany dropped. The reversal in the supply trend was a result of a shift in pricing between the UK and the continent, with the NBP day-ahead price flipping to a premium over its Dutch TTF counterpart.

What's next? Should the UK NBP day-ahead contract continue to attract a premium over the TTF equivalent, more flows to the UK can be expected over the course of the winter at the expense of continental Europe. Norway's main gas player, state-controlled Equinor, has said its sales strategy is highly dependent on prevailing European gas prices with supply decisions made more or less on a daily basis.

4. Chinese independent refiners reduce crude imports awaiting 2021 quotas

What's happening? China's private sector refiners and trading companies have imported a combined total of 160.67 million mt of crude over January-October, 90% of the import quota allocated to non-state-run oil companies for 2020. As of end-October, Hengli Petrochemical (Dalian) Refinery imported 22.23 million mt of crude oil, exceeding its yearly import quota permit of 20 million mt. Zhejiang Petroleum & Chemical has imported around 18.35 million mt of crude as of end-October, leaving only around 1.65 million mt of its 2020 import quota.

What next? Crude imports for China's independent refineries fell to a six-month low in October and the decline in feedstock procurement could reach around 16 million mt in November as private sector refiners have almost exhausted their import quotas for the year, according to market analysts and traders surveyed by S&P Global Platts. Still, feedstock procurement for late December arrival may pick up slightly as the Ministry of Commerce is expected to allocate a new round of quotas for 2021. For those arriving towards end-December, buyers can keep cargoes on the water for a few days and discharge once 2021 quotas are released, according to a market source.

Reporting and analysis by Rene Santos, Ying-Chin Chou, Stuart Elliott, Daisy Xu