In this week's Market Movers Americas, presented by Nicole Baquerizo:
* Naphtha arbitrage opens on low clean freight
* USGC diesel eyes refinery returns with six-month highs
* RBOB backwardation collapses as demand outlooks dim
* Corn and soybean yields drop in WASDE
In this week's Market Movers: rising US oil rig counts might signal drilling declines have reached a bottom; President Donald Trump may raise tariffs on Canadian aluminum imports; and rainy weather continues to weigh on US grain prices.
But first, Platts has launched a new benchmark for US crude oil, Platts American GulfCoast Select, or AGS. The assessment reflects light, sweet crude supplied direct from the Permian Basin on specified pipelines. AGS uses the Platts Market on Close assessment process with an end-of-day value, with bids, offers and transactions reflecting prices as determined by buyers and sellers in the open markets. Platts AGS reflects the value of the crude loading FOB US Gulf Coast, 15 to 45 days ahead.
In crude, the Brent/WTI spread reached its lowest level since 2017 in June, as you can see in the graphic. The spread had averaged just over $2.30/b this month, suggesting that US crude exports loading in late July and August could see a dip.
That said, export economics will get some help from lower freight costs with the US to UK Aframax rate falling to as low as $1.31/b earlier this month, the lowest level since July 2018.
At the same time, the US oil drilling rig count had its first week-on-week increase since late February, according to rig data provider Enverus. It ended June 24 with 195 rigs total, one more than a week earlier. The uptick could signal that the rig count has hit bottom and the downturn from the pandemic may be in the rearview mirror, although observers say new drilling likely won't begin to recover until next year.
In LNG, US liquefaction terminal utilization will face new pressure this week, with customers having canceled approximately 45 cargoes scheduled to be loaded during the month starting July 1. Fewer loadings mean less feedgas delivered to those terminals and that trickles down to interstate pipeline operators, shale drillers and tanker owners. Terminal utilization was recently at its lowest level in over a year due to the coronavirus pandemic effects.
President Donald Trump is considering whether to reimpose Section 232 aluminum tariffs on Canada as early as July 1, the same day the USMCA trade agreement is set to start. This has drawn backlash from many industry leaders, including the Aluminum Association, which represents US aluminum companies throughout the value chain. Section 232 tariffs on steel and aluminum imports were first implemented in 2018. Canada and Mexico were granted exemptions from the tariffs last year, but the American Primary Aluminum Association has lobbied US Trade Representative Robert Lighthizer to remove Canada's exemption status. They claim that Canadian imports have harmed the US industry.
The grid operator of the largest US wholesale power market is making multiple changes to power price formation that will impact its markets, as a July 6 deadline for a key piece of the puzzle nears.
PJM Interconnection has been working toward using forward power and natural gas prices to calculate an important metric used in some of its largest markets, including the energy and capacity markets.
Approval from federal regulators will be key in getting its delayed annual capacity auction schedule back on track. The PJM markets, power generation and transmission network supply power to 65 million people in all or parts of 13 states and the District of Columbia.
Rain forecasts across many of the US crop growing states will continue to weigh on prices, as corn and soybeans receive mid-growing season moisture. Market participants expect a June 30 crop estimate from the USDA to show corn acreage lower, at 95 million acres. At the same time, lower demand driven by the pandemic continues to push corn stock levels higher, leaving exporters trying to entice business before September's harvest in the US. Rising US ethanol production continues to provide an outlet for corn supply, though uncertain demand for biofuels in the third quarter has sidelined some buyers.
For more on all the issues affecting commodity markets, please check out Platts Live, a new section of our website that has been created for our customers to continue engaging with us, and each other. You can find it at the address displayed on your screen.
Thanks for kicking off your Monday with us and have a great week ahead.