In this week's Market Movers: The coronavirus outbreak in China and its effect on demand will remain the focus for most commodity markets, and the European power market will look at the impact on the supply side of reactor closures.
In this week's Market Movers: The corona virus outbreak in China and its effect on demand will remain the focus for most commodity markets; and the European power market will look at the impact on the supply side of reactor closures.
The oil market will this week be looking for further clarity on the effect of the coronavirus outbreak on Chinese demand and how producers will respond. Last week the International Energy Agency forecast that the first quarter of 2020 would mark the first quarterly contraction in global oil demand in more than a decade.
Various crude suppliers from West Africa, the Far East of Russia and the Americas will look poised to lower their offer prices to the Asian market as major refineries in Northeast Asia continue to slash their run rates and crude throughput because of the virus.
OPEC has been dithering alongside Russia on whether to implement further cuts in production in response to the fall in demand. However, it looks like the next meeting of OPEC and its partners in OPEC plus will go ahead as planned on March 5 in Vienna. Data on exports from OPEC kingpin Saudi Arabia is expected to be out this week from oil information provider the Joint Organisations Data Initiative. This should shed a little more light on the impact of the virus.
The coronavirus' impact on demand can be seen in the LNG market as well .On Thursday, Shell will release its much anticipated global LNG outlook. This is regarded by market players as a key report on market conditions in the short-to-medium term.
As you can see from the chart on your screen, the JKM Asian spot LNG price has fallen to its lowest level since S&P Global Platts began assessing it in 2009. The coronavirus has compounded the factors driving the price down. However, before the outbreak, the global LNG market was already oversupplied. LNG from new projects in Australia and the US more than offset demand growth, which itself was crimped by mild winters in Asia and Europe.
As well as the Shell report, the market will be looking for more details on how supply to China is being managed. Qatar, the world's top LNG exporter after Australia, has said it is talking with Chinese customers to redirect supplies because of the coronavirus situation. Other suppliers, such as Indonesia have also deferred supplies under a contract that was supposed to start deliveries in January. It now expects cargo deliveries to begin by April.
Back in Europe, the petrochemical market will be looking to see whether cracker operators will cut run rates to curb the growing oversupply of ethylene. The coronavirus is the main culprit here because it has seriously eroded demand in China for downstream polyethylene and glycols.
Glycols are used in antifreeze and polyester fibres.
This has meant the loss of export opportunities for European producers and competition from imports diverted to Europe from China. Should cracker runs be cut, this would tighten the European propylene market. Polypropylene is widely used in the automotive industry.
And that takes us to our social media question: How likely do you think it is European crackers will cut run rates? Tweet us your reply using the hashtag #PlattsMM.
And talking about supply reductions, the European power market is about to lose a third reactor in a matter of weeks with the closure this coming Saturday of France's oldest nuclear unit, Fessenheim 1.
This follows closure of Germany's Phillipsburg 2 and Switzerland's Muehlberg reactors at the end of 2019
You would think removal of 2.6 gigawatts of capacity within a 120-kilometer radius would prompt a price response. However, record-low nuclear generation this winter has barely dented European markets due to the mild winter and renewables stepping into the breach. During recent storms the hourly prices have turned into negative territory in several countries.
And finally, the weather will also be in focus when the International Maritime Organisation meets in London this week to assess the change to bunker fuel specifications it imposed globally on 1st of January, capping the sulphur in bunker fuel at 0.5%, and discuss what the next steps might be.
One topic of discussion will be a possible switch of focus from local emissions to wider carbon emissions and climate change, and whether the shipping industry can do more on this issue.
Thanks for kicking off your Monday with us and have a great week ahead!