Wildfires in Canada, international air travel, Russian crude imports to China and Algerian gas exports are in focus this week.
1. Wildfires likely to keep downward pressure on Canadian gas production
What's happening? Wildfires across western Canada are slashing natural gas production in Alberta this month. On May 19, over 90 active wildfires were ablaze in Alberta with some 25 classified as "out of control". Over the past two weeks, Canadian gas production has dropped to an average 16.6 Bcf/d, down from about 18.4 Bcf/d in April as at least seven Canadian producers shut-in output in response to the blazes.
What's next? Continued hot, dry conditions and shifting wind directions are threatening to further spread the fires, data from Alberta's ArcGIS Wildfire Status Dashboard showed. Tightening natural gas supply in western Canada has fueled a rally in spot gas markets with typically discounted locations like AECO and Westcoast Station 2 recently trading at close to parity to the US Henry Hub. With more dry weather in the forecast, provincial authorities expect that the wildfires could continue well into June, keeping downward pressure on Canadian oil and gas output. Tighter supply promises to keep gas pipeline exports to the US under continued pressure. Already this month, exports have dipped to an average 4.69 Bcf/d, down from an average 4.81 Bcf/d in April, data from S&P Global Commodity Insights showed.
2. Flights return to pre-pandemic levels but global jet fuel recovery lags air travel
What's happening? Global air travel measured by flights returned to pre-pandemic levels for the first time in May, according to industry data. Total global commercial flights per day averaged 105,682 in the first two weeks of May, in line with the same month in 2019 for the first time since the pandemic and 20% above where it was this time in 2022, according to aviation data provider Radarbox.
What's next? Jet fuel is expected to be the key driver of global oil demand growth in 2023 for a second consecutive year, with Asia now catching up after lagging behind the rest of the world in 2022. But the recovery of global air travel does not mean jet demand will follow for some time, according to market watchers. Long-haul flights are among the slowest to recover, and flights are now on average slightly shorter. The average aircraft has also become more fuel efficient as newer aircraft entered the global fleet over the last three years. Analysts at S&P Global Commodity Insights expect global demand for jet fuel and kerosene to recover to an average of 6.95 million b/d in 2023, up 840,000 b/d year on year but still 13% below 2019 levels of 8 million b/d. Global jet fuel demand is only seen recovering fully to average 2019 levels of around 8 million b/d in 2027, according to S&P Global.
3. China's crude imports from Russia fall in April
What's happening? Inflows of Russian crude to China dropped 23.5% in April to 1.74 million b/d (7.12 million mt) from the record levels in March, General Administration of Customs data showed May 20, as more cargoes from the OPEC+ supplier were drawn to India. Seaborne Russian ESPO Blend crude, a longstanding favorite among China's private refiners, is starting to attract buyers in India, with talk of multiple import deals being sealed by both Indian private and state-run refiners already lifting premiums for the grade.
What's next? China's crude imports from Russia are likely to rebound as Russia increased ESPO supplies to 39 Aframax-sized cargoes in May, with China taking 29 and India 10, according to shipping data from Kpler and Platts cFlow ship and commodity tracking software from S&P Global Commodity Insights May 22. Market sources said state-owned Unipec doubled its April ESPO procurement to eight cargoes for May delivery.
Related content: China on post-COVID revenge shopping for oil and gas
4. Algeria eyes continued gas export strength
What's happening? Algerian exports of natural gas to Southern Europe have remained strong so far in 2023, according to data from S&P Global. Pipeline gas supply from Algeria to the Continent has two main entry points -- the Medgaz pipeline to Spain and the TransMed pipeline, which sees gas flow to mainland Italy via Tunisia and Sicily. Algeria produces around 100 Bcm/year and is North Africa's largest gas exporter. Of its total production, a little under 50% is exported and the rest consumed domestically.
What's next? Algeria is North Africa's largest gas exporter, and is well positioned to meet Europe's energy needs, leveraging existing transit routes, utilizing its vast energy resources and recalibrating policy frameworks to boost upstream developments. State-owned Sonatrach expects to supply some 110 Bcm/year of gas for export and use domestically over the next five years.
Related content: War accelerates gas market globalization
Reporting by J. Robinson, Robert Perkins, Oceana Zhou, Sambit Mohanty, Hassan Butt