The Shipping Fuel Of The Future

1. Cushing Premia Soar as Rock-Solid Demand and Low Stocks Put Pressure on WTI

- The price of the US light sweet benchmark West Texas Intermediate, sold for delivery at Cushing, Oklahoma, saw a meteoric rise in physical premia as the oil market suspects one company of bidding its price up.

- The Cushing price of WTI soared to a $1.3 per barrel premium vs. the next month this week, the highest since November 2022, indicating very tight supply in the heartland of the US oil industry.

- Reportedly, it is Atlantic Trading and Marketing, the US trading arm of France’s energy major TotalEnergies (NYSE:TTE), that keeps on bidding up the US benchmark, brushing aside worries of high outright prices as refinery margins remain unprecedentedly profitable.

- Crude inventories at Cushing have been steadily eroding over the past three months to a mere 22.9 million barrels, halving since mid-June on the back of robust refining demand for US barrels.

2. Extended BRICS+ Brings Further Alignment of Oil Producers

- The addition of Saudi Arabia, Iran, UAE, Egypt, Ethiopia and potentially even Argentina into BRICS, forming a new BRICS+ grouping, has the potential to consolidate the world’s leading energy suppliers.

- BRICS+ domination will be especially notable in renewable energy where the alliance is set to boast 11 TW of capacity by 2050, more than double the 4.5 TW that G7 countries are expected to reach by that point.

- BRICS+ will also combine 37% of global liquids production and 33% of gas production, a metric greatly boosted by the inclusion of Saudi Arabia, the UAE and Iran into the bloc (Iraq is also interested but would take several years to join, too).

- Whilst G7 countries will see much quicker moves towards full electrification of their vehicle fleet, the outright volume of BRICS+ EV sales by 2040 (cca 4 million units per year) will be almost double those of the G7.

3. European Gas Prices Soar on LNG Supply Woes

- Chevron’s Australian strike woes seem to be coming to an end after the country’s regulator moved to broker a deal with trade unions, however LNG supply disruptions are back on the agenda again after gas flows to Sabine Pass LNG dropped by 18% Thursday from a day earlier.

- Europe’s most actively traded TTF contract jumped from €34 per MWh at the beginning of this week to €39 per MWh by Friday, with the Sabine Pass volume drop echoing a similar decline in Freeport LNG flows.

- The more than 10% jump in prices might have reached its peak as returning Norwegian pipeline flows, curbed for most of September due to field maintenance works, are gradually recovering.

- Europe’s gas inventories remain well above seasonal averages with storage sites 94% full on average, however volatility in LNG supply keeps gas futures firmly in contango for the winter months.

4. Chinese Coal Imports Skyrocket on Quality Issues

- China is importing record amounts of coal this year as the Asian powerhouse’s domestic quest to mine as much as possible is degrading the quality of its output.

- According to industry reports, China is set to import 420-450 million tonnes of coal (roughly 80% of which would be thermal), obliterating the previous record of 323 million tonnes set in 2021.

- Indonesia, historically China’s largest supplier of coal, has been losing ground to Russia and Australia, both supplying higher quality high-calorific value coal, though the latter still trends some 2-3 million tonnes per month lower than before Beijing’s ban in late 2020.

- China’s own coal production has been firing on all cylinders to avoid another coal shortage as in 2021, but incremental supply has led to a notable decline in the calorific value of produced coal, an issue raised by China’s Electricity Council back in early 2023.

5. Beating Ammonia and Hydrogen, Methanol Emerges as the Shipping Fuel of the Future

- Methanol is emerging as the front-runner in the maritime industry’s quest for alternative non-fossil fuels, with S&P Platts expecting a 26-fold increase in shippers’ methanol demand by 2030, soaring to 2.5 million tonnes.

- Producers of green methanol try to meet the emerging needs of low-carbon tankers, with the US alone seeing some 4.4 mtpa of new projects coming from SunGas Renewables, Carbon Sink, and WasteFuel.

- Benefitting from IRA tax credits, green methanol producers have mostly committed their volumes to Maersk, so far the champion of methanol-based shipping as the number of methanol-capable ships is expected to rise from 30 this year to 204 in 2028.

- Maersk has recently carried out the first-ever journey of a methanol-enabled container vessel, Laura Maersk, first of a wider order of 25 due to arrive next year as the Danish shipping company wants to become climate neutral by 2040.

6. Copper Unable to Break Free as Rising Stocks Limit China Upside

- Depressed by recessionary pressures in Europe and the United States, copper inventories held on warrant with the London Metal Exchange doubled since July to more than 100,000 metric tonnes.

- Copper demand is seasonally weaker in the Northern Hemisphere during summer months, but warehouse departures have been exceptionally weak in July-August 2023.

- Time spreads in copper futures have collapsed recently, with the cash-to-three-months spread moving into a deep contango of $60/mt, suggesting the inventory build-up might turn out to be even bigger than it is currently.

- Copper prices remain rangebound for months, with the three-month price locked in the $8,150-8,850/mt bandwidth, and even though Chinese stocks of the metal remain relatively slim by any historical yardstick, demand from the rest of the world has been weighing heavily.

7. Oil Price Rally Puts US Recession Back on the Agenda

- Soaring energy costs are making a comeback for the Federal Reserve as US authorities confront the ghosts of long-forgotten recessions from the 1970s and 1980s when inflation control was hampered by rising oil prices.

- Hiking interest rates above 5% in just 18 months, the Federal Reserve insists on inflation control that is higher for longer, however the resurgence of oil prices to $95 per barrel lately begs the question if the effects are going to be as transitory as the Fed believes.

- Higher spending on gasoline usually precedes recessionary impact and according to the San Francisco Fed, households will have drawn down the excess savings built up during the COVID period by this quarter.

- With personal interest payments on the rise in the United States and credit card delinquencies increasing consistently, higher-for-longer crude oil prices might lead to higher-for-longer US interest rates.