Global Oil Supply Set To Overtake Demand

1. Global Supply Bound to Overtake Demand Next Year

- The US Energy Information Administration revised lower its price outlook for 2021-2022, dropping its annual 2021 Brent estimate to 68.61 per barrel, whilst WTI was lowered to 65.69 per barrel.

- Whilst lowering global demand both for 2021 and 2022 on concerns of travel restrictions extending into next year, the EIA still foresees a 5 million b/d increase this year and another 3.6 million b/d in 2022, putting the resulting tally at 101 million b/d.

- The agency sees OPEC adding 1.4 million b/d over 2022, to reach a total of 28.34 million b/d, implying that the OPEC+ deal will most probably be extended into 2023 and beyond.

- US oil production is seen to average 11.08 million b/d this year, whilst next year will see an increase to 11.72 million b/d.

2. LNG Dynamics Point to Exorbitantly High Winter Prices

Source: Thomson Reuters.

- Going against all previously established seasonal trends, spot LNG prices in Asia have risen to $20 per mmBtu despite several buyers already curbing their buying activity amidst soaring prices.

- Hurricane Ida has aggravated US supply issues that were already curtailing LNG exports (August has seen several terminal-feeding pipelines going into maintenance), bringing about loading delays.

- Supply difficulties continue to mar Asia’s LNG output, with Malaysia already notifying its Japanese customers that the potential for cargo deferrals remains in place for the entire November-January period.

- Should end-users fail to receive their cargoes on time, they might be forced to venture into the spot market, adding another layer of appreciative pressure as we look into the heating season.

3. Hurricane Ida Unleashes Devastation Unseen Since 2005

- Hurricane Ida has become the most damaging hurricane in more than 15 years as even 12 days after it made landfall most of the production facilities in the Gulf of Mexico remain offline – 76% of overall capacity was still out as of September 09.

- Royal Dutch Shell, the largest equity holder in the GoM, declared force majeure on several crude deliveries, including two VLCC cargoes destined for China.

- Trading at discounts below $2.50 per barrel to WTI before the arrival of the hurricane, Mars has appreciated by almost $5 per barrel over the past week as the Mars-WTI spread skyrocketed to a multi-dollar premium.

- Ever since the hurricane triggered the first production shut-ins on 26 August, Ida has kept more than 20 million barrels of crude in the ground.

4. UK Power Prices Skyrocket into Unprecedented Heights

- Electricity prices in the United Kingdom rose to £2,300 per MWh (equivalent of $3,200 per MWh) over this week as weak wind generation, tight gas supplies, and several unplanned outages have put the country’s power sector under intense pressure.

- Neighbouring Ireland, which traditionally exports electricity generated by its wind plants to the UK, halted its interconnectors and warned of potential blackouts coming up.

- Low winds have been adversely impacting UK’s power balance for several weeks already, now with both sides of the Irish Sea underperforming power prices are set to rise even further.

- The UK’s national grid operator has already been aligning with utility companies, asking them to keep gas-fired capacities ready-for-use.

5. Japan Readies For a Difficult Winter

- Learning from the mistakes of previous bouts of market tightness, the Japanese government and its utility companies prepare their contingency plans for the winter amidst $20 per mmBtu LNG prices.

- Most utilities have already secured their winter-season supplies, opting to buy LNG and coal cargoes ahead.

- Moreover, Japan intends to maximize output from its nuclear plants, amongst others by postponing maintenance on the Ooi nuclear plant and restarting one of the Ikata plant’s reactors in the upcoming weeks.

- Wary of repeating last winter season’s $32/mmBtu prices, key buyers like JERA have already secured more than 3 million tons of LNG for the November-February period, despite the high prices.

6. Guinea Coup Whips Up Aluminium Prices Even Higher

- Three-month aluminum prices traded at the London Metals Exchange rose to their highest since August 2008, surpassing the $2,800 per metric tonne threshold, Reuters writes.

- The coup that saw President Alpha Conde ousted with the military taking over the country stoked fears of potential supply disruption in bauxite flows from Guinea, the world’s second-largest producer.

- The new military leadership was swift to declare that it would respect Guinea’s obligations related to mining agreements, nevertheless operations are expected to be hindered by the socio-political confusion.

- Chinese buyers have been following developments in Guinea with special interest as the African country supplied China with 55% of its bauxite supply.

7. Uranium Prices Surge on Fund Speculation

- Uranium prices have surged to their highest level since 2015 after Canada-based investment firm Sprott started buying up physical supplies, with the ETF amassing 24 million pounds of uranium already.

- Equivalent to a quarter of average spot-traded volumes, Sprott has been boosting its Physical Uranium Trust that it launched earlier this year.

- Uranium futures soared more than 15% over the week, surpassing the $40 per pound mark on the back of shrinking physical availabilities.

- Spearheaded by Sprott, August saw the highest number of uranium transactions in 25 years, with the overall volume soaring to 13.2 million pounds.