S&P Global Platts editors keep an eye on global oil demand recovery against the backdrop of growing concerns over the rise infections involving the Delta variant of COVID-19. Also on the radar this week are the challenges faced by CCUS projects, La Nina's potential impact on agriculture, as well as China's oil product exports.
1. Global oil demand recovery on track
What's happening? Global demand for key oil-based fuels has rebounded sharply this year despite growing concerns over outbreaks of the so-called Delta COVID-19 variant. During the first seven months of the year, demand for key fuels is estimated to have risen by 5.5 million b/d or 9%, according to S&P Global Platts Analytics. While demand for jet fuel remains below pre-COVID levels due to ongoing travel curbs, heavy fuel oil is already above comparable 2019 levels supported by a resilient shipping sector and robust power sector demand in many key economies.
What's next? Much of the global oil demand recovery set to come from developed countries with high COVID-19 vaccination levels. But most market watchers are betting that demand revival for key fuels will remain on track despite regional setbacks from spikes in Delta cases. Road fuel sales are expected to fully recover to 2019 levels by year-end, supported by the continued lifting of restrictions in the US. Overall, Platts Analytics expects global oil demand to recover to within just 300,000 b/d of 2019 levels by end-2021 despite jet demand lagging well into the current decade.
2. CCUS projects face challenges
What's happening? Chevron's Gorgon LNG facility, one of the largest carbon capture, utilization and storage projects in the world, fell short of five-year capture goals, due to delays in commissioning and startup constraints. The project was designed to capture and inject up to 4 million metric tons of carbon dioxide per year, produced in the gas stream from offshore gas wells in Western Australia and stored into a formation below Barrow Island, injecting at least 80% of removed CO2 from offshore gas production. At the end of the five-year assessment window July 18, roughly 15 million metric tons of CO2 have been transported to Gorgon facility, with about 30% (~4.5 million metric tons) having been injected, well short of the 80% target. This leaves Chevron and its partners Shell and ExxonMobil liable for the remaining balance.
What's next? While investments into CCUS projects to date have faced an uphill battle being profitable because of delays, cost overruns and inefficiencies, continued optimization of facility construction and performance should help narrow gaps moving forward. Developers of future projects similar to Gorgon LNG that include carbon capture technology may need to factor in incremental costs related to emission reduction and carbon offsets, potentially driving higher price expectations needed to reach FID.
Interactive: Platts Atlas of Energy Transition
3. Weather patterns, La Nina forecast drive global agricultural prices
What's happening? Droughts here, floods there. Ongoing weather troubles in the agriculturally prominent countries are influencing prices of wheat, corn, soybean, and vegetable oils. In the US, spring wheat, corn, and soybean prices on the Chicago Board of Trade rose significantly over the last one year but have been volatile lately on weather cues. Dry weather in Russia and Ukraine raised concerns over wheat quality, pulling down export prices. Brazil also suffered severe drought during most of the corn-growing months and localized frost in June, hampering corn yields and production prospects.
What's next? Weather disruptions across the globe, which are influencing agriculture commodity prices, are likely to continue to be a key driver for prices going forward as well. This will be felt particularly in the US and Europe, where majority of the crops are still developing. Forecast of La Nina in the latter part of the year will also influence weather patterns, as well as agriculture commodity outlook and prices.
4. China's carbon control commitments could be an oil export quota game changer
What's happening? China's June product exports were higher than market expectations. Some sources suspect that portions of actual exports at end-May and early July were possibly included in the June data due to administrative time gaps. Among three major products, gasoil outflows rose 45% month on month and surged 127% year on year. Platts Analytics believes that seasonally weak domestic demand, higher output from national oil companies after the end of maintenance and no shortage of blending material had encouraged China's national oil companies to lift gasoil outflows in June.
What's next? The market is awaiting clarity on China's export quotas, although some sources have said that authorities might announce more than 9.8 million mt of export quotas within the week. Platts Analytics said July exports could drop without new quota allocations. It added that China's commitment on carbon control could influence its decision on quota issuance, while having to balance the NOCs lobbying for their export business.
Reporting and analysis by Robert Perkins, Emmanuel Corral, Abhijeet Thakkar, Bhavini Patel, Shikha Singh, Pratibha Alagh, Sampad Nandy, Mugunthan Kesavan, Aditya Kondalamahanty, Kang Wu, Grace Lee, and Jianan Sun.