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Commodity Tracker: 6 charts to watch this week

The Suez Canal blockage has pushed tanker rates up and put additional pressure on an already tight container market. This week's tracker also looks at oil demand recovery, the impact of theTurkish Lira's depreciation on energy in the country, and trends in gas and petrochemicals.

1. Suez shipping backlog fuels tanker rates as markets plan contingency moves…

tanker rates clean crude

What's happening? The blockage of the Suez Canal, a vital trade route between Europe and Asia, early on March 23 sent ripples through global commodity markets and disrupted supply chains. More than 360 ships, including at least 35 crude tankers, were still waiting to transit the waterway early March 29, even after the partial success in refloating the huge Ever Given container ship which ran around in the southern section of the canal. Initial news of the blockage sent Brent crude prices jumping 6% on March 24 to over $64/b before concerns over new lockdowns in Europe reversed most of the gains. With the key trade route yet to reopen, however, oil prices were coming under renewed pressure early March 29.

What's next? The backlog of global shipping traffic is still expected to take weeks to clear and has fueled tanker rates amid rising concerns over trade transit delays. Ships have been increasingly diverting from their original trade routes. Rerouting around Africa's Cape of Good Hope could add as much as 20 days to a voyage from the Middle East Gulf to Rotterdam compared with crossing the Suez Canal. Refined product shipments from the Persian Gulf and India to Europe are expected to be delayed by up to a week as clean tankers, both Long Range and Medium Range, are unable to cross the canal.

2. … and container rates to Europe from North Asia set to remain firm

Platts container rates

What's happening? While shipping flows through the Suez Canal have resumed, the backlog of vessels built up after almost a week of closure will take time to clear. Some container shipping liners had diverted their vessels via the Cape of Good Hope late last week, in an effort to keep cargo moving and prevent further delays. Container availability was already tight before the Suez blockage, so any delays in the supply chain will cause headaches for cargo owners.

What's next? Strong rates are expected to continue in the Asia-Europe container market. There are currently significant logistical issues owing to equipment shortages, so with more containers tied up either in transit via the Cape of Good Hope, which adds 10-12 days to sailing time, or moving through the backlog to transit the Suez, it appears this tightness will continue for some time. As of Friday, freight rates remain largely stable, with container carriers adopting a wait-and-see approach. But once the Suez Canal is cleared, European ports will also face further delays as all the previously stuck container ships arrive at one time.

3. Oil demand gap vs 2019 closing, but jet fuel still shows strong impairment

global oil demand impairment 2021 vs 2019

What's happening? Global oil demand is still impaired by roughly 7%, or about 7.2-7.5 million b/d, relative to levels seen in 2019, before the pandemic. Jet fuel/kerosene demand is the most impaired among oil products, still down about 33% from 2019. Gasoline is down about 10%, while gasoil/diesel demand is down about 6%.

What's next? S&P Global Platts Analytics expects a significant reduction in the impairment to evolve over the next several months. By July, total demand is expected to see its impairment lessen to -0.3% or 325,000 b/d, compared to average demand seen in May-July 2019. Jet fuel/kerosene, while it will improve, is still expected to be down 18%.The key metrics that need to be monitored are aviation traffic (including commercial and private/business), which is still down 33%, compared to pre-pandemic levels, along with road transportation mobility. While mobility remains lower relative to pre-pandemic norms, improvement is expected in the coming months as lockdown restrictions are eased, the global economy continues to recover, and seasonal uplift kicks in.

4. Turkish lira depreciation may impact domestic power mix

Turkey power generation by source and impact of currency depreciation

What's happening? The Turkish lira sharply depreciated against the US dollar March 19, after Turkey's president replaced the central bank head. Previous similar sharp depreciations in the currency between August-October 2018 and in November 2020 corresponded with subsequent declines in power demand and generation, as well as coal and pet coke import demand.

What's next? Turkey purchases most of its thermal coal imports from Colombia and Russia, whereas pet coke imports mainly come from the US. The high freight rates make fronthaul shipments more expensive for Turkish buyers, but the continued ramp up of a new export port in Taman, on the Russian Black Sea coast, could see more Russian coal imports, making up the shortfall in Colombian and US volumes. S&P Global Platts Analytics also believes there could be a push to increase domestic lignite mining in the wake of the currency depreciation. In the power sector, gas-fired generation has supported by dry hydro conditions since last summer, in spite of growing hydro capacity. Moving through summer 2021, recent gains in Brent crude will feed through to the lagged oil contracts. This, alongside the lira depreciation, will make Turkey's gas import bill more expensive, and alongside potential downside to topline power demand amid a weaker macroeconomic backdrop, could weigh on gas generation.

5. EU gas storage refill could drive higher Russian pipe volumes, LNG imports

EU gas storage 2018-2020

What's happening? EU gas storage sites are now less than 30% full after a particularly heavy withdrawal season over the winter, with market players now preparing to switch to injection mode in a bid to replenish stocks. Estimates suggest 50% more gas will be needed this summer to build back stocks, which were critical in meeting the record-high demand triggered by cold weather in January and February.

What's next? The potential for strong injection demand could support prices as the market looks to refill storage facilities, while buyers will likely look to Russian pipeline volumes and LNG to provide the necessary supply. LNG, in particular, could be drawn to Europe as spot LNG prices have come down to the level of European gas prices in recent weeks.

6. European BUTAC price soars to new high on constrained supply

Butyl acetate price soars March 2023

What's happening? European butyl acetate spot truck prices have been on an upward trajectory since mid-September, when buying from the automotive sector bounced back, meeting the seasonal pattern. Butyl acetate, or BUTAC, is a solvent with numerous applications in auto manufacturing. Having been assessed at Eur750/mt Sept. 15, the product's climb turned much steeper from mid-December to date and soared up to a fresh all-time high of Eur3,150/mt on March 23, as European supply was hit by feedstock limitations. BASF declared force majeure on its n-butanol operations at Ludwigshafen, Germany, following technical issues, sources said in early December. BASF has 90,000 mt/year of BUTAC capacity at the same site. N-butanol is a key feedstock for BUTAC production.

What's next? N-butanol tightness has been ongoing since the start of December 2020 and there are no indications about when it will relax. Meanwhile, tightness persists in the other BUTAC feedstock, acetic acid, adding to the supply constraints. Further price increases are expected in April due to the feedstock limitations, a producer said.

Reporting and analysis by Robert Perkins, Eklavya Gupte, Charlotte Bucchioni, George Griffiths, Alan Struth, Matthew Boyle, Bruno Brunetti, Stuart Elliott, Stergios Zacharakis