S&P Global Commodity Insights editors are closely watching how Asian refineries react to escalating tensions between Israel and Iran, while keeping an eye on OPEC+ production as oil prices continue to rise. Meanwhile, US coal production fell to record lows amid high stockpiles.
1. Middle East conflict put Chinese independent refiners' appetite for Iranian crude in spotlight
What's happening? The escalation of tensions between Israel and Iran raises questions as to whether the flow of Iranian crude oil to China's independent refiners can continue. China's independent refineries, based in Shandong province, were estimated to have imported around 4.81 million mt (1.14 million b/d) of Iranian feedstock in March, comprising crude oil and fuel oil, down 12.1% from 5.47 million mt imported in February, according to S&P Global Commodity Insights data.
What next? Iranian crudes are expected to continue flowing to China's independent refiners despite Iran's April 14 attack on Israel, which raised concerns over the future procurement of such cargoes, refinery and trade, sources told S&P Global. Iranian cargoes, which are usually masked as blended crudes that originate from Malaysia, have been the main feedstock for independent refineries. These cargoes typically account for around 40%-50% of feedstocks imported by independent refiners in China, according to S&P Global estimates. In the event that Washington imposes stronger sanctions on Iran, independent refiners in China might have a tougher challenge to overcome while buying those cargoes and prompt them to think about replacement supplies.
2. US weekly coal production falls to record low: EIA
What's happening? US weekly coal production for the week ending April 6 fell to its lowest in 22 years, according to the Energy Information Administration's estimates released April 11. The national coal production estimate dropped to roughly 7.7 million st, down about 1.1 million st or 12.5% from the 8.8 million st a week earlier. The four major coal-producing regions -- Central Appalachia, Northern Appalachia, Illinois Basin and Powder River Basin -- reported multiyear lows in weekly output.
What's next? With high stockpiles in both the US and Europe, production could continue to stay at low levels. The combination of lower demand and production has flattened prices in 2024. Low natural gas prices have also added to the downward pressure on coal prices and production.
3. Price rally increases likelihood that OPEC+ may wind down output cuts in H2
What's happening? A recent uptick in oil prices is fueling market speculation that OPEC+ may wind down some of its crude production cuts in the second half of 2024. Current cuts are in force until the end of June, with most countries' quotas unchanged in the second quarter. Russia is moving from a cut on supply to production, which would see its output fall to the same level as Saudi Arabia's in June. OPEC+ countries implementing cuts produced 165,000 b/d above quota in March, representing a compliance rate of 97.9%, driven primarily by OPEC members rather than their Russia-led allies. OPEC's March crude output was up 3,000 b/d month on month at 26.6 million b/d, according to secondary sources, including S&P Global analysts.
What's next? OPEC's demand forecasts for its own crude are well above current production volumes. OPEC said April 11 that it expects demand for its crude to be 28.5 million b/d in 2024, and 29 million b/d in 2025. The 2024 forecast is 1.9 million b/d above current production. OPEC+ ministers are next scheduled to meet June 1 when they will discuss production plans for H2. Compliance is expected to be a key issue, with several countries producing above their target in March, including Iraq and Kazakhstan, which have said that they would compensate for overproduction in early 2024. OPEC+ could meet earlier if market conditions warrant.
4. S&P Global Commodity Insights' Food & Beverage Price Index inches up 0.2 points on month
What's happening? S&P Global's Food & Beverage Price Index increased by 0.2 points to 120.8 points in March from February's marginally revised figure. The Softs sub-index increasing by 40.4 points month on month. Cocoa and robusta coffee prices spiked once again during the month as supply concerns intensified and short positions were squeezed in futures markets.
What's next? If the new all-time highs in these markets see a swift reversal and other prevailing market trends continue -- notably the bearish grains market -- a sharp reduction in the overarching Food & Beverage Price Index is probable in Q2. So far in April, however, no immediate signs of a market correction have emerged, with supply concerns continuing and traders still needing to get out of short positions.
5. Corn prices among major suppliers trading at the lowest in three years
What's happening? Corn from Argentina, Brazil and the US traded at an average of $196/mt in Q1, the lowest in three years. The price drop was first triggered when Brazil reduced its prices after it hit a record marketing year in 2022-23. To match Brazil's competitive offering, its counterparts gradually reduced prices as well. This fundamental driver of low prices continued into 2024, with a strong supply outlook on account of a large production in Argentina. Corn prices continue to trade low due to high supply availability.
What's next? Market sources expect lower prices to continue until 2024-25 in the backdrop of increasing production forecasts. The US Department of Agriculture prospective plantings report in March outlined a smaller area for corn, driving futures up. Going into 2024-25, analysts expect corn prices to continue in the low range, if not less, on account of increased output forecasts.
6. Brazil's soybean oil export values surge to 20-month high
What's happening? Soybean oil spot port differentials in the Brazilian export market have notched a 20-month high amid tight supplies for overseas shipments, firm domestic demand and dropping Chicago Board of Trade futures, according to an S&P Global analysis. On April 11, Platts assessed the FOB Paranaguá basis for May-loading cargoes at minus 400 points to the CBOT May (K) contract, the highest level for a front-month shipment since Aug. 9, 2022. Compared to the same date a year ago, the FOB Paranaguá assessment has increased by 790 points, according to Platts data. Platts is part of S&P Global.
What's next? Such a supportive tone over cash basis levels is likely to remain in place mainly to the higher biodiesel mandate in Brazil. Since March, the mandatory mixture of the biofuel into diesel has been 14%, from 12% in 2023.
Report and analysis by Sambit Mohanty, Daisy Xu, Michael Fox, Rosemary Griffin, Peter Storey, Shivam Prakash, Jose Roberto Gomes