In this week's highlights: Key talks are due on the transit of Russian gas to the EU via Ukraine; Germany is set to change its emissions policy; and the European gasoline market grapples with a combination of a spec change and IMO 2020.
But first, the oil market will be focused on the ramifications of Saturday's attacks on key facilities in Saudi Arabia.
State-run oil company Aramco said the attacks on oil facilities at Abqaiq and the kingdom's second-largest oil field, Khurais, has led to the temporary loss of 5.7 million barrels a day of output. In August Saudi Arabia produced 9.77 million barrels a day in August, of which it exported around 7 million, according to the latest S&P Global Platts survey. However, Saudi energy minister Prince Abdulaziz bin Salman has said the country's export customers will be supplied from stocks. According to the Joint Organization Data Initiative figures, Saudi Arabia in June has enough stocks to cover around 27 days of exports. The International Energy Agency has also said markets are well supplied with crude and that commercial stocks are ample. But front-month Brent futures were up by more 15% Monday with ICE Brent trading between $66-72/b. The attacks have brought the geopolitical risk in the Persian Gulf region back into focus. Yemen's Iranian-backed Houthi rebels claimed responsibility for the operation. A Saudi-led coalition is backing the internationally recognized government militarily against the Houthis. However, the US, a key ally of the Saudis, has accused Iran of directly carrying out the attacks, something Tehran strongly denies. Earlier in the year there were several attacks on tankers in the Gulf, for which the US blamed Iran.
Tensions are already high between Washington and Iran over the Trump Administration's decision to re-impose sanctions on Tehran. Market participants will be monitoring responses from all sides carefully to see whether or not tensions escalate further. You can keep up with all the events in the Gulf on our website.
And that takes us to our social media question this week: What do you think the main implications of the attacks on the Saudi oil facilities are? Tweet us your thoughts with the hashtag #PlattsMM.
And it's not only the Middle East where the focus will be on geopolitics and energy supply. On Thursday there will be a key meeting in Brussels between Russia, Ukraine and the European Commission. The three sides will be seeking to hammer out gas-transit terms for 2020 and beyond.
Without a deal, the European Commission is worried that Russian gas supplies to the EU could be disrupted from January 1.
That's a problem because Ukraine is currently Russia's biggest single transit route to the EU. It carried over 40% of Russian supplies in 2018, and is heading for a similar share this year, as this chart shows.
Russia's access to alternative routes to Ukraine for 2020 is looking limited. Its planned Nord Stream 2 pipeline to Germany is still waiting for a key planning permit from Denmark. An EU court ruling last week restricted its access to Germany's OPAL gas link, which will limit how much Russia can flow through its Nord Stream 1 pipeline.
So the pressure is on to reach a deal, and the market will be watching the outcome closely.
And a change in policy will be on the agenda in Germany on Friday when Chancellor Angela Merkel's cabinet is set to make a major decision on climate-change policy.
The key question is whether a carbon tax or a national carbon trading scheme would better for achieving emissions targets. The measures are aimed at transport and heating -- areas currently exempt from EU emissions trading. A wider review of energy taxation is also planned.
The market will also be looking for details of the country's planned coal-fired power plant closures and how it is planning to boost renewable energy ahead of a UN climate summit later this month.
European refiners, however, will be looking at transport fuels in a different way. They will be paying close attention to the difference between gasoline and crude oil -- known as the crack spread -- looking to optimize their output ahead of a seasonal specification change from October 1. This is when a less stringent and in turn cheaper gasoline is needed in Europe as temperatures drop, allowing lighter material to be used.
This time of year often causes much uncertainty in the market place. This has been compounded this year by refiners already adjusting their production in response to the upcoming marine fuel sulfur limit – also known as IMO 2020. European diesel crack swaps recently hit a six-month high against gasoline cracks, reflecting the increased profitability of diesel production. However, there are signs of tightness emerging in the gasoline market.
That wraps up this edition of Platts Market Movers. Thanks for kicking off your Monday with us, and have a great week ahead!