Commodity Tracker: 4 charts to watch this week

Russia and China signed new energy deals on the sidelines of the Winter Olympics in Beijing over the weekend, while Europe deals with low gas inventories. Beyond energy issues, the conflict between Russia and Ukraine is raising concerns in the wheat market.

1. Russia, China sign gas deal amid geopolitical tensions

What's happening? Russia's Rosneft and China's CNPC have signed a supply deal for 100 million mt of crude oil, equivalent to 200,821 b/d, moving to China via Kazakhstan. Russia's Gazprom also signed a 10 Bcm/year gas supply deal with CNPC which will see Gazprom's pipeline supplies to China reach 48 Bcm. The stronger energy ties are highly symbolic and have geopolitical ramifications as they come amid rising tensions in Europe over Ukraine and Beijing's ongoing trade spat with Washington. While the deals were being signed, the Biden administration has been conducting its gas diplomacy and asking top LNG exporters like Qatar and top importers in Asia to divert LNG to Europe if a conflict were to arise.

What's next? Oil and gas trade flows between Russia and China will only increase in the coming years. The increase in trade flows will mean greater interdependencies between the two countries, allowing Russia to diversify its revenue streams from Europe and enabling China to expand its energy sources from the Middle East, US and Australia.

Related factbox: Russia and China sign gas deal as markets edgy over Ukraine

2. Russia, Ukraine wheat supply uncertainty brings competitors into spotlight

What's happening? Export prices of wheat originating from the Black Sea region, mainly Russia and Ukraine, have declined sharply over the past month as tensions prevail between the two countries. Russian and Ukrainian wheat export prices have shed 4%-5% over the past month. According to S&P Global Platts data, Russia 12.5% protein wheat export FOB prices settled at $313/mt Feb. 4, down $6 day on day and Ukrainian 11.5% protein wheat FOB export prices were at $308/mt, down $1 day on day. Ukraine exported 1.2 million mt in January, down from 1.4 million mt in December. For Russia exports stood at 2.6 million mt in January, down from 3.2 million mt in December.

What's next? With the pace of exports from the Black Sea region declining, demand for Australian premium quality wheat is expected to rise in the Middle East and Africa, the world's largest wheat buyers. For MY 2021-22, traders are expecting upbeat wheat exports from Australia and Argentina. This is significant for global wheat supplies, which are seen tightening due to poor output in North America and the uncertainty in the Black Sea region.

3. China's carbon emissions allowance price hits record high

What's happening? The daily weighted average price of a carbon emissions allowance, or CEA, under China's national carbon market increased by 6.8% week on week to Yuan 61.38/mtCO2e Jan. 28, a record high since the market opened on July 16, 2021, according to data from Shanghai Environment and Energy Exchange. Trade volumes were on a downtrend in January, after the first compliance period ended Dec. 31 when volumes swelled to 28.07 million mtCO2e. The demand surge was driven by a regulatory push requiring companies to fulfill their compliance obligations by end-2021.

What's next? China's environment ministry, which oversees the national carbon market, has not made an official announcement as to which sectors will be enrolled to the national compliance market this year, as well as their respective quotas. As a result, companies with surplus CEA from the last compliance period are likely to hold some CEAs on hand instead of selling all of them given the uncertainty of this year's arrangement. This is expected to tighten the market supply. If this year's emission quotas assigned to the participating companies are significantly tightened, the CEA price will continue following an upward trend. The environment ministry is expected to announce this year's arrangement soon after the Chinese New Year holiday, which will give the market participants better clarity and potentially enhance China carbon market's liquidity.

4. Concerns persist over low level of European gas storage

What's happening? European gas stocks are now below 38% full heading into the final months of the heating season, helping to keep prices at sustained highs into February. The TTF day-ahead price hit an all-time high of Eur182.78/MWh on Dec. 21, an increase of 985% year on year, according to Platts price assessments. The low level of stock build-out over the summer -- European storage reached a peak of just 77% full by October -- has seen stocks drawn down to dangerously low levels.

What's next? Whether the remaining gas stocks in Europe will be sufficient to see out the winter will depend on the weather in the coming months, though industry is confident there will be enough gas to see out the rest of the heating season. However, a prolonged cold snap, or any potential disruption to pipeline supplies or lower LNG deliveries could see stocks drawn down quickly to record lows. The low stock levels are also contributing to price strength on the curve given the need to replenish stocks.

Reporting and analysis by Oceana Zhou, Rosemary Griffin, Sampad Nandy, Ivy Yin, Eric Yep, and Stuart Elliott.