In this week's Market Movers, the tensions in the Middle East supports oil prices and keeps gold in focus; the fallout of IMO 2020 is a hot topic for shipping and bunker markets; and the weather and French nuclear power station maintenance will loom large for the power market.
In this week's Market Movers, the tensions in the Middle East supports oil prices and keeps gold in focus; the fallout of IMO 2020 is a hot topic for shipping and bunker markets; and the weather and French nuclear power station maintenance will loom large for the power market.
The extraordinary rise in tensions in the Middle East following last week's killing by the US of Iran's General Qassim Soleimani in Baghdad and Iran's ballistic missile retaliation on bases in Iraq housing US forces will be in the spotlight Monday at the International Petroleum Technology conference in Dharan. Top Saudi officials, including energy minister Prince Abdulaziz bin Salman and the CEO of state-controlled oil company Aramco, Amin Nasser, will be giving their views. The security situation will no doubt feed into mounting speculation over the future of the supply cut agreement between OPEC and its partners, as the next OPEC meeting in Vienna is less than eight weeks away, on March 5.
Despite the heightened concern over the Middle East, the expectation has been for an over-supplied oil market in the first half of the year. Market participants will be looking for guidance on whether this will hold true from two oil market reports due out this week. OPEC and the International Energy Agency will publish their monthly reports on Wednesday and Thursday, respectively.
And it's not only the oil market which will be keeping a close eye on the Middle East. Gold briefly hit a seven-year high of more than 1,600 dollars an ounce last week as Iran-US tensions came to a head.
Despite shedding some of its rise as tensions have eased, some analysts expect gold to maintain a support level of around 1,550 dollars an ounce in the near term because of its safe haven appeal in an uncertain world. This has been illustrated by central banks bolstering their gold reserves.
Gold bulls will be pleased by the array of glittering price forecasts, with Citi Research seeing 2,000 dollars an ounce as a possibility in the medium term.
How high or how low do you think the gold price will go in the next three months and why? Please tweet us your feedback under the hashtag #PlattsMM.
A much less shiny commodity, bunker fuel, has also made a volatile start to the New Year. The dry bulk shipping markets will be keeping a close eye on 0.5% sulfur marine fuel oil prices this week as ship owners evaluate the long-term efficiencies of the scrubbers installed to comply with the IMO 2020 sulfur cap.
As you can see in this chart, the Platts Scrubber Premium Indices for Supramax and Panamax ships closely tracks the price of Rotterdam delivered 0.5% marine fuel, which has fallen 12% since January 3. As fuel prices drop, the cost-savings of scrubbers decreases, making the initial 1 to 2 million dollar capital expenditure on the exhaust gas cleaning systems more difficult to recoup.
However, slower-than-expected uptake of scrubbers on high-consumption container ships in the Atlantic is supporting demand for 0.5% sulfur fuel oil and is contributing to cracks for the new fuel rising. Cracks are the difference between the price of an oil product and crude oil.
Staying with the subject of whether a market can sustain its start to 2020, the European gas markets will be keeping a close eye this week whether sales of Russian gas on Gazprom's Electronic Sales Platform can maintain their momentum after starting the year 2020 at record highs.
As you can see from the chart on your screen, sales on January 9 hit a new daily record of almost half a billion cubic meters.
Gazprom launched the ESP to sell gas outside of its traditional long-term contract model in September 2018 and over time has increased the number of delivery points and delivery periods. Buyers can now secure gas on a within-day basis, as well as on a season-ahead basis.
S&P Global Platts Analytics expects sales on the ESP to remain high as Gazprom looks to make up for smaller than usual sales in December.
The auctions in December only offered gas for prompt delivery on concerns that Russian gas flows via Ukraine could be disrupted in the event of a "no deal” on transit between Moscow and Kiev. The two sides finally signed a new five-year transit deal on December 30, allaying fears of a cutoff in Russian deliveries to Europe via Ukraine.
Talking of disruption to supply, this week marks the start of a wave of 10-year overhauls to French nuclear reactors. The overhauls coincide with reduced availability across Europe's dominant nuclear generation fleet.
Normally this would have a bullish impact on the power price, but the reality is that the near-term curve contracts are under pressure from the unseasonably mild and windy weather.
These factors mean the Week Three German power contract is 30% lower than for the same week in 2019.
European wind generation records have been tumbling this winter, with stormy weather forecast for this week presaging further spikes in renewable generation.
Thanks for kicking off your Monday with us and have a great week ahead.