Commodity Tracker: 4 charts to watch this week

This week, Permian Basin gas prices falling to negative territory forms our top story for Commodity Tracker. S&P Global editors also focus on expectations of Europe's power utilities reporting strong Q2 earnings and a new framework announced to define high-quality carbon credits.

1. Permian gas prices decline, volatility to ease in coming months

What's happening? Gas prices across the Permian Basin dipped into negative territory(opens in a new tab) in July 28 trading in what appeared to be a maintenance-related decline that also comes amid a midsummer rebound in gas production there. Although likely not attributable to a single cause, the sharp price dislocation for the West Texas gas market comes amid recent maintenance-related cuts to pipeline capacity around the Permian which have likely been further exacerbated by a sharp rebound in Permian gas production this month.

What's next? With at least two brownfield pipeline expansions on Permian Highway Pipeline and Whistler Pipeline scheduled to enter service by year end, producers in West Texas can look forward to some relief from price volatility in the months ahead. In the meantime, extended periods of high gas production, pipeline maintenance and/or low demand will pose a continuing risk for in-basin prices.

2. Europe's power utilities expected to report strong H1

What's happening? The market value of wind and solar output in Europe fell back close to pre-energy crisis levels in the second quarter of 2023. However, prices remain above the long-term average, mirroring the trends seen in wider power and gas markets in Europe.

What's next? Against this backdrop, equity analysts expect most of Europe's major utilities to continue their strong start(opens in a new tab) to the year when they report their second-quarter earnings in July and August, with some even floating the possibility of full-year guidance upgrades on the back of a strong first half. While many companies may see earnings decline year over year, those with merchant generation or energy trading divisions will continue to reap the benefits of prices still at levels above the long-term average.

3. New quality guidance could support carbon credit liquidity

What's happening? The Integrity Council for the Voluntary Carbon Market unveiled July 27 its assessment framework(opens in a new tab) to define high-quality carbon offsets. The framework will be used to evaluate whether carbon credits meet the ICVCM's high-integrity Core Carbon Principles (CCPs). The guidance comes at a crucial juncture for the $2 billion voluntary carbon market. Growing scrutiny over the efficacy of some carbon offsets and projects had led to a sharp fall in both liquidity and prices.

What's next? The ICVCM said it will start establishing several multi-stakeholder working groups to assess different categories of carbon credits and associated crediting methodologies against the CCP criteria and recommend those that meet the threshold. Labeled credits will be available to buyers by end-2023. S&P Global analysts believe the ICVCM has now provided some clarity to the market but an upswing in prices and liquidity is unlikely till the first half of next year.

4. EU pig iron outlook bleak on slow steel recovery

What's happening? European steel mills' pig iron production in June has remained weaker on the year, cutting demand and spot activity for raw materials such as iron ore and pellets, coking coal and met coke. The decline in productivity has followed weaker steel prices(opens in a new tab) and unforeseen stoppages at blast furnaces in France and Spain, partly compensated by production from other plants. Global pig iron volumes have seen stronger trends, with output in the rest of the world excluding the EU trending up over January-April and strengthening again in June following a sharp decline in China's output in May.

What's next? A recovery in pig iron production in Europe and Turkey may boost demand for iron ore and coking coal in the second half of 2023, with several blast furnaces restarting after checks in the first half. The overall impact on pig iron rates and spot demand for raw materials may be limited on weaker demand seen in H2 2022, with met coke stocks at mills rising during high gas prices. The European Steel Association (Eurofer) said that steel consumption is expected to grow slowly only from Q3 with a recovery in 2024 amid high uncertainty over regional steel demand. Eurofer downgraded regional apparent steel consumption in 2023 to a 3% decline, from an earlier forecast 1% contraction.

Reporting and analysis by J Robinson, Alex Blackburne, Eklavya Gupte, Hector Forster