In this week's Market Movers: Oil and shipping markets monitor the impact of the coronavirus outbreak on crude oil demand from China; oil markets will be looking to see if the blockade of Libyan ports continues; a key report on the state of the European steel industry is due out; and the petrochemicals industry will be keeping a weather eye on Rhine water levels.
In this week's Market Movers: Oil markets will be looking to see if the blockade of Libyan ports continues; a key report on the state of the European steel industry is due out; and the petrochemicals industry will be keeping a weather eye on Rhine water levels.
But first, the oil and shipping market participants will be closely monitoring the potential impact of the coronavirus outbreak and its impact on crude oil demand from China. The Chinese authorities' response of locking down cities and restricting travel since the disease broke out in the city of Wuhan has sparked concerns about demand destruction. These have been exacerbated by the outbreak coinciding with the Lunar New Year festivities when demand for transport fuel usually rises as people travel to celebrate with their families. Flights in and out of the regions affected have been cancelled. Should the travel restrictions last excess jet fuel will be expected on the global market. European jet fuel prices fell 5% last week for hit a 4-month low.
Events in China have also had an impact upstream on both crude prices and tanker rates falling.
As you can see from the chart on your screen, the rates for very large crude carriers from the Persian Gulf to China fell sharply, taking the drop in the last 10 days of trading to 25%.
Moving from oil demand to oil supply, Libya's five main oil export ports have been blockaded since January, with force majeure declared on more than 1 million barrels a day of sweet crude.
If the blockade continues more than a week, traders say there will be no spare storage capacity and the National Oil Company will have to cut production. They say that this cut could even boost March ICE Brent futures by 10%. In the second half of 2019, there were two force majeures in Libya but the stakes are now are higher. The leader of the self-styled Libyan National Army, Khalifa Haftar, who is running the blockade, may not relent until he has control of the entire country. Haftar is fighting the UN-backed Government of National Accord. Many traders are in wait-and-see mode, but traders offering sweet grades loading in the Mediterranean - such as Azeri – are seeking premiums of around 6 dollars a barrel, which would be a multi-year highs.
The UK government is due any day now to announce a new funding model for nuclear power projects, with lobbying intensifying as a decision comes closer.
As you can see from the map on your screen, the building of new nuclear capacity in the UK has lagged behind closures, making a decision all the more pressing. Last year's consultation on the matter focused on a regulated asset base model akin to that used for large transmission projects. EDF is reportedly pushing for a quick resolution so it can move workers from the in-construction Hinkley site to proposed new site Sizewell in an efficient manner. Meanwhile Rolls Royce has been touring the studios promoting its small modular reactor program, which it says can produce sub 60 pounds per megawatt-hour power by 2029.
European Steel Association Eurofer is set to give a market update as the prospects of higher steel demand have improved slightly so far this year. European steel prices have risen from the multi-year lows last year. Prices were mainly driven up by production cuts, which started to be announced from May 2019 to help relieve overcapacity problems, and operational changes at major Italian works Ilva. It is expected that European steel products prices may rise further due to strikes in France, which last week resulted in major steelmaker ArcelorMittal declaring force majeure at its Fos sur Mer plant. The company has also announced a reline of a blast furnace in Ghent in Belgium, and that it will be making further production cuts in Italy.
Finally, while steel prices may be rising, Rhine water levels are falling. This is causing problems for olefins plants upstream. Water levels are approaching the 1-meter mark at the key chokepoint of Kaub in Germany. They are expected to hover around that level this week. Barges delivering upstream are travelling under loaded. Gas barges are currently under loaded by 25% with liquid barges under loaded by 50%.
Thanks for kicking off your Monday with us, and have a great week ahead