In this week's Market Movers: OPEC+ group will meet in Vienna on the back of the coronavirus outbreak; commodity markets are monitoring the growing spread of the virus; UK power plant closures could boost Capacity Market auction prices, and a Milan court will rule on the former Ilva steelworks' future.
In this week's highlights: Commodity markets are monitoring the growing spread of the coronavirus outbreak; UK power plant closures could boost Capacity Market auction prices, and a Milan court will rule on the former Ilva steelworks' future.
But first, this week's big fixture for oil markets is the meeting of oil and energy ministers from OPEC and non-OPEC countries in the OPEC-plus group. This is due to go ahead on Thursday and Friday in Vienna, against a backdrop of the worldwide coronavirus outbreak, now close to the group's doorstep.
As the outbreak sends shockwaves through the global economy, the question in the market is: Should OPEC-plus countries deepen production cuts? The current cut is 1.7 million barrels a day, or around 1.7% of daily global output. Saudi Arabia has pledged an extra 400,000 barrels a day cut, or roughly 4% of its total output.
However, non-OPEC kingpin Russia has been cautious on committing to further reductions, putting it somewhat at odds with the Saudis.
A technical committee set up to support the ministers' decision-making recommended an additional 600,000 barrels per day cut when it met in early February.
Estimating the size of the impact of the coronavirus on global oil demand, and the speed of recovery for the global market is a hard question, with estimates varying widely. OPEC has forecast 2020 demand will be reduced by 230,000 barrels per day due to the outbreak. S&P Global Platts Analytics puts the reduction at more than double that, around 470,000 barrels per day.
Beyond demand impact, the virus is also affecting work forces. Companies have begun taking staffing precautions and sending employees home, from trading offices in London to oil fields in Iraq.
A similar situation is developing in the petrochemicals sector, with attendance at the European Petrochemical Luncheon expected to be much reduced this week.
And that takes us to this week's social media question:
The coronavirus will also be on the European gas market's mind. Participants will be watching closely whether LNG cargoes diverted away from Asia could land on European shores, putting further pressure on an already low spot price.
Global gas prices have converged further as demand concerns weigh on prices due to the continued impact of the coronavirus.
Spot Asian gas prices traded at an all-time low in mid-February, even dipping below spot prices at the Dutch TTF hub.
European hub prices are again below 10 euros a megawatt-hour despite some cold weather, given extremely high storage stocks and an oversupplied global LNG market.
The shipping market too will be looking to see if dry bulk Panamax time-charter rates for the East Coast South America to China route will take a hit from the coronavirus outbreak. The lockdowns in China as a result of the outbreak have hit demand there for imports from South America such as coal and iron ore.
As you can see from the chart, rates rallied over the past week because of strong demand for grains cargoes loading in the second half of March. Demand for loadings in the first half of April has yet to emerge fully. However, the supply of ships has tightened, pushing rates to a three-month high. Whether this marks a short-term ceiling, given the effects of the coronavirus on demand, will be closely watched.
Moving from gas to power; on Thursday, the power sector will be watching the UK's latest Capacity Market auction to see if coal and nuclear closures ahead of delivery in October 2023 could support the clearing price. The capacity market auction is there to guarantee security of electricity supply. Generators bid, and on success are paid a fee to be available during the set period.
Because of considerable oversupply in recent years, auction clearing prices have been low. But Drax's decision to close two, 660-megawatt coal units next year will mean capacity margins starting to tighten.
And finally, on Friday, steelmaker ArcelorMittal and the Italian government are due to face each other in a Milan court to draw up an agreement on the future of the former Ilva steelworks, Italy's largest steel coil and plate maker.
Since November 2018 the works has been operated by ArcelorMittal Italia. One year on in November 2019, ArcelorMittal announced its intention to pull out of the venture, which has been beset by environmental and cost problems. Negotiations have been underway with the government since then to ensure continued operation.
It is now expected that the world's largest steel producer will continue to produce at the Taranto site with the government taking a golden share. Production levels may still need to be thrashed out. The facility's current crude steel production rate is put at 4.1 million metric tons a year: ArcelorMittal Italia has said it could produce 6 million metric tons a year there by 2023. The government, however, was recently quoted as saying it wants the plant to produce 8 million metric tons a year to safeguard jobs, closer to the plants nameplate capacity at around 10 million metric tons a year.
Thanks for kicking off your Monday with us, and have a great week ahead.