19 Aug 2021
Commodity markets are facing a multitude of idiosyncratic supply disruptions. Geopolitical tensions are the key supply risk for the energy market. Emission curbs, power shortages and resource nationalism are risks for metal markets.
The rise in Omicron case numbers has stifled road traffic in many countries. Global commercial flight numbers are also slowing and US air travel tanked during the New Year holiday.
Brent oil’s forward curve is steepening, reflecting supply tightness in the oil market. Backwardation widened to $US9 per barrel from $US3 per barrel in mid-December.
US rig numbers in the US grew by 11 for the week ending 11 January, while oil production was steady at 11.7 thousand barrels per day. OPEC+ produced less than its committed level of 28.09 thousand barrels per day in December, rising only by 90kb/dm/m.
Libya’s production outages added to this underperformance. Refinery margins remain attractive which should keep oil processing at higher levels.
Oil inventories in the US fell to 413,000,000 barrels, the lowest since October 2018.
LNG prices became volatile as weather turned warmer in December and flow into the European market increased. However, supply risks remain elevated due to escalating tensions with Russia.
Flows into Germany’s Mallnow compressor station, where the Yamal-Europe pipeline terminates, dropped to zero this week. Gas storage fell below 50 per cent.
Coal stocks have built-up in China and India, cushioning Indonesia’s recent export restrictions.
Power prices resumed their uptrend in Germany after plunging in mid-December. Gas power generation in Germany rebounded strongly this month.
France’s nuclear power generation has picked up since the start of the year but this could reverse if EDF closes more plants for maintenance. European carbon price remains relatively resilient amid heightened gas and coal prices.
Daniel Hynes is Senior Commodity Strategist and Soni Kumari is CAIA Commodity Strategist at ANZ
This article was originally published by ANZ Research and has been edited for length
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
19 Aug 2021