Commodity Tracker: 5 charts to watch this week

Geopolitical risks heightened amid the war between Israel and Hamas. S&P Global Commodity Insights editors are keeping an eye on oil prices and trade flows as the conflict . Ahead of winter, EU gas storage levels and LNG trades in Asia Pacific are also in focus.

1. Oil prices rally on supply risks following Hamas attack on Israel

What's happening? Crude oil futures rallied by 4% late Oct. 8 after Israel launched attacks in Gaza in retaliation to a major surprise attack by Hamas militants on Oct. 7, adding new geopolitical risk into a market that was flagging amid fresh concerns over the health of the global economy. The unprecedented attacks came after crude futures markets had settled sharply lower on the week, dragging Brent prices down 10% since Sept. 28. Crude prices fell almost 6% onOct. 4 alone, in the biggest one-day sell-off since September 2022, ending a rally that began in June when fresh output cut pledges by Saudi Arabia and Russian pushed prices toward $100/b. Platts, part of S&P Global Commodity Insights, assessed physical Dated Brent at $88.20/b on Oct. 6, the lowest since Aug. 31, 2022.

What's next?  While Israel is not an oil producer, an escalation could threaten production in neighboring Gulf countries were they to be pulled into the conflict. Energy market fears are expected to center around concerns that the latest conflict could draw in the powerful Lebanon-based militant group, Hezbollah and potential Israeli direct action against Iran. The conflict could also remove barrels from the market, as the US may enforce harsher sanctions on Iran(opens in a new tab), which backs Hamas and Hezbollah. It could also stall or reverse progress on the landmark 2020 Abraham Accords that have eased Middle East tensions, allowed for a rapprochement between Saudi Arabia and Israel, and paved the way for growing trade flows between the UAE and Israel.

Related content: FACTBOX: Hamas attack on Israel raises regional energy stakes(opens in a new tab)

2.EU gas storage stocks now almost 97% full

What's happening? EU gas storage sites are now filled to almost 97% of capacity, exceeding 2022's peak winter fullness. The high stocks were the result of the EU's mandated storage filling target of 90%, weak demand over the summer and a wide summer-winter spread that incentivized injections.

What's next? With October off to a mild start and temperatures across Europe set to remain above seasonal normal in the coming week, EU gas stocks could build yet further and approach full capacity. Traders have moved to store gas in Ukraine given its vast surplus storage capacity, with more than 2 Bcm held by foreign traders in Ukraine, given the level of stocks in the EU.

3.Asia Pacific LNG physical, financial trading activity at highest levels since 2021

What's happening? Trading activity in the Asia LNG physical and derivatives market in the Platts Market on Close assessment process reached a record high in the third quarter(opens in a new tab), according to S&P Global Commodity Insights data. The Platts MOC process saw 11 trades from July to September. In comparison, five trades were reported in the physical MOC in Q3 2022. Around 780,000 mt of LNG physical cargoes were traded in Q3, the highest since Q4 2021, when 1.62 million mt were traded, according to S&P Global data.

What's next? In recent months, market participants have been responding quickly by trading and hedging against fast-moving conditions in preparation for winter. In 2023, trading chains have been reaching as many as 15 legs in some bilateral trades, up from two to three legs in 2022. Market sources noted that continuing supply uncertainty, weak downstream demand and contango opportunities are prompting importers to divert or optimize cargoes.

4.Asian supplier set to boost global UCO supply over US-EU incentives

What's happening? Global supply of used cooking oil is expected to more than double to 31 million mt by 2030, from the current 14 million mt, according to market participants, driven by rapidly growing Asian supply geared towards cashing in on US and EU incentives for biofuels made from agricultural waste and non-agricultural feedstocks. UCO-derived biodiesel has a significantly lower carbon footprint with a small carbon intensity score compared to biodiesel derived from first generation conventional vegetable oil feedstock such as rapeseed, soybean and palm. UCO imports from the EU is estimated to rise to 3.7 million mt in 2030, according to trade estimates, as the bloc ramps up its decarbonization targets under its Renewable Energy Directives policy from its second phase known as RED II to RED III in 2023.

What's next? With an increased collection of the feedstock, China is likely to become the largest supplier of UCO(opens in a new tab) to western destinations. Apart from China, other Asian countries could be in a decent position to take advantage of the surge in UCO demand from markets like the EU and the US, although a lack of domestic policy support, and making collection and exports at a large scale would be the main hurdles. In Asia, there is an abundance of first-generation feedstocks such as palm oil and sugar, which governments have mandated for use in biofuel generation.

5. EU steelmaker's iron output weak, as China lifts ROW

What's happening? EU steel mill pig iron production volumes in 2023 through August continued weaker than usual, cutting consumption for iron ore pellets, coking coal and met coke. Pig iron rates track weaker steel demand and steel prices as indicative steel margins decreased to lower levels. A number of blast furnaces underwent maintenance, as mills manage programs with market demand. Global pig iron volumes have been supported by growth in China and India, which compensated for weaker trends in Brazil, North America, Japan and Taiwan.

What's next? European pig iron output may need to see annual declines moderate later in the second half after weaker levels over H2 2022. An improvement in pig iron rates and raw materials demand may be limited for now as mills consider tougher steel market conditions into operating plans for Q1 2024. A seasonal decline in China's pig iron and steel output may be seen through into March 2024, with tougher emissions controls and policy targets for stable steel production.

Reporting and analysis by Robert Perkins, Claudia Carpenter, Stuart Elliott, Christel Goh, Atsuko Kawasaki, Samyak Pandey, Hector Forster