Commodity Tracker: 5 charts to watch this week

S&P Global Commodity Insight editors will keep a close eye on Europe's gas restocking activities ahead of winter as well as indications on OPEC+'s production policy. Our analysts examine US gasoline demand, while our pricing team focuses on dry bulk freight rates and styrene-benzene spreads.

1. Will Europe have enough gas this coming winter?

What's happening? The EU continues to build its gas storage stocks ahead of winter, though the rate of filling has slowed after Russia cut supplies via the Nord Stream pipeline to just 40%(opens in a new tab) of capacity in mid-June. European gas prices have remained at sustained highs on fears that Europe may struggle to restock enough gas to see it safely through the upcoming winter.

What's next? All eyes will be on the rate of restocking while the Nord Stream pipeline is closed for its annual maintenance shutdown from July 11-21. It could even see storage sites switch to withdrawals to help meet gas demand. German officials have also warned that there is the possibility that Nord Stream won't return at all after its maintenance. IEA chief Fatih Birol has also warned that Russia could suspend gas exports to Europe completely(opens in a new tab).

Related infographic: European gas, power on emergency footing going into Q3 2022(opens in a new tab)

2. Guessing game is on for OPEC output policy after planned production hike in August

What's happening? The OPEC+ alliance(opens in a new tab), including Russia, on June 30 reaffirmed plans for a nominal 648,000 b/d production rise(opens in a new tab) in August. The group has been modestly raising its quotas each month, aiming to restore production to pre-pandemic levels by August. However, many member countries have not been able to keep up, due to deteriorating infrastructure, a lack of investment or political instability, causing the group's spare production capacity to shrink.

What's next? OPEC+ did not discuss how much crude oil the group will be able and willing to pump after August, although their production policy is expected to be high on the agenda when US President Joe Biden visits Saudi Arabia from July 15-16 for a summit with Gulf leaders. Platts Analytics expects the group will only be able to fulfill about 340,000 b/d of the August increase.

3. Vacation-related driving could support near-term US gasoline demand

What's happening? Google publishes mobility metrics for six categories of economic activity. Using five of these activity metrics and applying driving distances associated with each provides a gauge of vehicle miles traveled, or VMT. There is noted strong seasonal variation in the parks and recreation mobility metric, while grocery and pharmacy drive has largely normalized. The normalization of mobility still lags for work-related activities, such as "transit and workplace," as a significant component of the workforce is still working from home. Retail travel also lags, but less than work related driving. Such VMT estimates align well with historical VMT, along with facilitating a short-term outlook for VMT.

What's next? This data also correlates very well with US gasoline demand. Modeled VMT trends based on such mobility metrics suggest a nearly 7% on month gain in VMT occurred in May and a minor on month gain in June. Gasoline demand is estimated to have posted an on month gain in May of about 115,000 b/d and another 50,000 b/d in June. S&P Global Commodity Insights analysts' gasoline demand estimate implies a July on-month gain just short of 70,000 b/d with an additional 225,000 b/d on-month gain in August. Vacation driving will be a large component of that strong gain in August, along with support from transit and work-related driving. A weakening of the economy could reduce some of that work-related support, but grocery store and retail activity should remain supportive.

4. Styrene production margins shrink

What's happening? Styrene production margins have narrowed almost to non-existence over feedstock benzene, as the two markets saw vastly different supply dynamics in June. In the benzene market, prices have been pushed higher by thin availability – strong demand for gasoline from the US and West Africa has seen aromatic feedstocks such as pygas diverted to the gasoline blending pool, leaving little extraction potential for benzene, toluene and mixed xylenes. Conversely, in the downstream, styrene tanks have filled up after production issues in the European market in H1. High pricing and the cost of living crisis have brought demand destruction to construction and automotive sectors, major consumers of styrenics derivatives.

What's next? The margin is expected to recover in the spot market moving into August, with benzene seen in backwardation due to incumbent imports from the Middle East. Signs of contango also are coming to the styrene market, as some purchasing was also deferred on expectations of prices falling in July. This is now unlikely due to the increase in upstream benzene feedstock throughout June, meaning styrene customers will be forced back to the market.

5. Soaring commodity prices, inflation seen causing headwinds for dry bulk market in Q3

What's happening? Shipping market participants are broadly holding off from procuring and moving larger volumes of cargoes due to volatile and elevated commodity prices. In Q2, Platts Cape T4 index, a trade flow-based weighted average of four key Capesize routes, at an average of $18,072/d compared with $25,796/d and $25,523/d for APSI 5 and KMAX 9, a trade flow-based weighted average of five key Supramax routes within the Asia-Pacific and nine key Panamax routes, respectively.

What's next? Aggressive monetary policies, including interest rate hikes being pursued by various central banks, are weighing on global commodity demand and freight rates(opens in a new tab) in the near term. Sanctions and protectionisms arising from the ongoing Russia-Ukraine war has had profound impact on trade flows, sources said. However, there's a silver lining with many European countries announcing the restart of coal-fired power plants, which could bring coal into the Mediterranean.

Reporting and analysis by Stuart Elliot, Alan Struth, Robert Eissen, Herman Wang, Shriram Sivaramakrishnan, Nicholas Zhang, Simon Price.