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Commodity Tracker: 5 charts to watch this week

  • Featuring
  • S&P Global Commodity Insights
  • Commodity
  • Agriculture Energy Transition Oil Shipping

This week, S&P Global Commodity Insights editors and analysts look out for potential oil production disruptions in the US, higher drilling costs, Singapore's multifuel bunkering hub ambitions, palm oil demand in Asia, and carbon market activities ahead of the UN Climate Conference.

1. US Gulf Coast output threatened by above-normal hurricane season which is starting to pick up

US Gulf Coast output amid hurricane season

What's happening? After a relatively slow start, the Atlantic hurricane season is picking up steam, so far producing seven named storms. Hurricane activity peaks historically peaks in mid-to-late September, which typically brings about significant disruptions to production in the US Gulf Coast. The 2021 storm season was the third most active behind 2020 and 2005. In September 2021 alone there was about 800,000 b/d of crude production lost to storms. At peak storm activity a loss of 400,000 b/d of crude production is not unusual for any one month.

What's next? Once a storm enters the Gulf, there are limited locations it can make landfall without doing extensive damage, both in the US mainland and Mexico. Analysts at S&P Global Commodity Insights project an assumption for a seasonal loss, on average, of 75,000 b/d in 2022. No outages have yet to occur due to storms this year, though this could change in the next few weeks or so. There is also the consideration of damage to downstream processing facilities such as refineries and chemical plants, which impacts crude demand, but also final end-use product demands.

2. Higher US drilling activity, supply chain issues result in 16% cost increase in 2022 but the worst appears to be over

Higher US drilling activity, supply chain issues result in 16% cost increase in 2022

What's happening? The cost to drill new wells in the US is up 16% year on year, on the back of increased oil and gas drilling activity - due to high oil prices - as well as supply chain issues. All cost components are up with fuel (diesel) and tubulars (steel pipe) faring the worst. Drilling costs are rising 22% year on year, while completion costs are up 14%. Meanwhile, operator's efficiencies such as faster drilling techniques and more productive wells have been able to offset almost half of the impact of inflation on well breakevens.

What's next? Price increases have started to moderate and some cost components have decreased in the past couple of months. In addition, oil prices, which prompted the increase in drilling activity in 2022, have also started to recede. Analysts at S&P Global forecast WTI to average $82/b in 2023 compared to $97/b this year.

3. Maritime Singapore embracing a multifuel future

Singapore marine fuel mix

What's happening? Singapore, the world's largest bunkering port, remains at the helm of various green shipping initiatives. The Maritime and Port Authority of Singapore recently released its Maritime Singapore Decarbonization Blueprint, charting ambitious and concrete long-term sustainability strategies, and inked an agreement with the Port of Rotterdam to establish the world's longest Green and Digital Corridor. Singapore's success with the International Maritime Organization's global sulfur limit rule for marine fuels has been fairly evident, with a marked shift away from heavy fuel oil towards cleaner fuels.

What's next? Singapore is aiming to become a multifuel bunkering hub as decarbonization objectives drive global shipping. Based on current industry pilots and feasibility studies, biofuels and LNG are the likely interim or transitional fuels in the near term, according to the MPA. By transitioning to full-electric propulsion or net-zero fuels, MPA is also aiming for its harbor craft fleet to halve 2030-level emissions by 2050. MPA also expects hydrogen and its carriers, including ammonia and e-methanol, to potentially play important roles in the decarbonization of international shipping in the mid- to long-term.

Special report: Energy in the new era

4. Integrity Council to release much awaited Core Carbon Principles

Voluntary carbon markets

What's happening? A 60-day consultation on the draft Core Carbon Principles launched by the Integrity Council is coming to an end Sept. 27. The initiative was launched to offer market players a way to identify high-quality carbon credits with real, additional and verifiable climate impact. Voluntary carbon markets have shown stable to bullish notes in the second half of September, after a bearish start of the month, as both Q4 and the UN Climate Conference approach.

What's next? Following the deadline, the Integrity Council is expected to release the Core Carbon Principles in Q4 2022. The debate is set to intensify this week after Verra, the largest certifier of carbon credits, warned last week that too prescriptive criteria may impact market liquidity.

5. Palm oil demand seen jumping as discount over competing vegoils widens

Palm oil vs soybean oil

What's happening? The price gap between palm oil and soybean oil has widened to more than $500/mt in over two months. Palm oil prices started falling following Indonesia's export tax cuts and levy scrap, raising palm's advantage over other vegetable oils. Palm oil's discount was the widest on record at $646/mt Sept. 12, S&P Global data showed. The benchmark Malaysia palm price has fallen more than 40% from its peak in March.

What's next? Palm oil demand is expected to jump, driven by its huge discount to other vegoils. Higher palm demand could lift Indonesian and Malaysian palm, reduce stocks and buoy prices. Palm has become lucrative for refiners as it is offered at more than $500/mt discount to soyoil. Refiners prefer cheaper palm oil for October-November shipments to India and China.

Reporting and analysis by Sami Yahya, Rene Santos, Alan Struth, Surabhi Sahu, Silvia Favasuli, Nurul Darni