Commodity Tracker: 4 charts to watch this week


China’s zero-COVID policy is weighing on the country’s oil demand outlook, while third-party certification of natural gas production is gaining momentum in the United States. European imports of polymers from Russia amid the war in Ukraine and palm oil exports from Indonesia are also of concern.

1. Chinese oil demand in Q2 will drop 7.8% YoY

What is happening? China’s road transport and aviation sectors started to rebound in May from the level a month ago as COVID-19 lockdowns and nationwide movement restrictions eased . However, May’s promising recovery is so far insufficient to offset April’s oil losses, as it was tarnished by the largest scale of COVID-19 lockdowns in major Chinese cities since February 2020. Analysts from S&P Global Commodity Insights estimated that China’s oil demand contracted 11.5% or 1.7 million b/d on the year to 13.35 million b/d in April, posting the lowest level since March 2020.

And after? Demand in May will likely recover by almost 900,000 bpd over the month due to the easing of containment measures. However, it will remain 9% or 1.4 million bpd lower for the year due to the removal of lockdowns at varying rates and stages to contain the spread of omicron. S&P Global analysts expect oil demand in the second quarter to decline 7.8% on the year. Stimulus packages are likely to support China’s oil demand growth of 3.8% or 600,000 bpd year on year in the second half of 2022, but downward pressure remains due to the zero policy country coronavirus.

2. Haynesville emerges as a US hub for certified gas

Haynesville Becomes America's Leading Hub for Certified Gas |  S&P Global Commodities Outlook

What is happening? Third-party certification of natural gas production continues to gain momentum in the United States, with producers publicly committing to certify more than 20 Bcf/d of production by the end of the year. About 95% of public commitments were concentrated in two pure play areas of gas production: Appalachia and Haynesville. While Appalachia is poised to certify more gas on a volumetric basis, Haynesville is now leading the way in terms of percentage of production in the basin. The East Texas and Northwest Louisiana Basin has the advantage of being close to proposed and existing Gulf Coast LNG export terminals and, as new data from Global Commodity Insights Satellite Methane Intensity, among the lowest methane emissions profiles in the nation.

And after? Amid increased investment in Haynesville gas production and newly proposed transmission infrastructure to move gas south to Gulf Coast demand, third-party certification can give Haynesville producers a competitive advantage in the marketing of gas to environmentally conscious LNG buyers.

3. European imports of Russian polymers increase despite Ukrainian invasion

European imports of Russian polymers increase despite Ukrainian invasion |  S&P Global Commodities Outlook

What is happening? EU27 imports of Russian polyethylene and polypropylene – the most widely used polymers – reached record levels in March despite Russia’s invasion of Ukraine, according to Eurostat data released on 16 May. Despite the avoidance of Russian hardware by some end users, traders were happy to take Russian products at a discount while Russian sellers sought to liquidate inventory destined for European markets, particularly Eastern Europe. Conversely, exports to Russia fell to multi-year lows as sellers sought to avoid reputational damage as well as logistical and financial hurdles associated with selling equipment to Russia. Russia has significantly increased its sales of polymer products in Europe in 2020 and 2021, part of a strategic pivot to Europe from Asia by leading producer SIBUR.

And after? An EU import ban on Russian PP looks set to limit the flow of products ahead of the July 10 deadline for existing contracts. Although exports to Russia have not been banned by sanctions packages, market sources describe challenges with restrictions on transactions with Russian banks and expect flows to continue to decline in April and in May, sellers adjusting their trade flows away from Russian entities.

4. Indonesia lifts ban on palm oil exports

Indonesia lifts ban on palm oil exports |  S&P Global Commodities Outlook

What is happening? Indonesia has announced it will resume palm oil exports from May 23, but on the condition that producers set aside 10 million tonnes of cooking oil and crude palm oil for domestic needs. As Indonesia’s return ended high supply uncertainty in the vegetable oil market, crude palm oil futures initially rose on May 20, the August contract fell slightly on Monday afternoon.

And after? Malaysia, Indonesia’s main rival in the palm oil market, is still selling short-term physical contracts for palm oil. Trade sources said high prices and rising production costs in the two countries, Indonesia and Malaysia, which together account for 85% of global palm oil exports, will limit bearish sentiment in the market.

Reporting and analysis by Zhuwei Wang, Kang Wu, Kelsey Hallahan, Emmanuel Corral, Callum Colford, Daniel Pelosi, Aditya Kondalamahanty


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