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Commodity Tracker: 4 charts to watch this week

Asian demand for light crude oil grades and record US gas exports to Mexico are in the sights of S&P Global Platts editors this week. Plus, European gas price trends and the prospects for German power plant fuel switching.

1. Asian crude buying helps widen spread between light and heavy grades


light and heavy crude oil spreads 2018 2019 Murban Basrah WTI

What’s happening? Asia was quick to respond to the growing uncertainty over Arab Light and Arab Extra Light crude supplies following the September 14 attacks on core Saudi oil facilities, with Southeast Asian refiners among the first group of buyers to secure alternative light oil cargoes from the spot market. The apparent shortage in supply of light Saudi crude to Asian refiners has boosted demand for distillate-rich grades in the global spot market. As a result, the outright price spread between Murban crude and Iraq’s heavy sour Basrah Heavy staged a sharp rebound this week, settling at $4.60/b Friday, Platts data showed, having touched a record low of $2.35/b on August 19.

What’s next? The rise in Asian buying activity potentially sets the tone for light/heavy sour crude price spreads to widen in the short run – how long exactly depends on how fast Aramco can fully restore production from the damage. In addition, the spread between the official selling price of Arab Extra Light and Arab Heavy could widen in the coming months if Chinese end-users continue to face a shortage of lighter-end Saudi term crude supply, according to multiple refinery and trade sources surveyed by Platts.


2. US exports record gas volumes to Mexico as pipeline availability rises


US natural gas exports to Mexico 2019

What’s happening? US natural gas pipeline exports to Mexico climbed to a record high last week propelled by the recent addition of new transmission capacity on the 2.6 Bcf/d Sur de Texas-Tuxpan marine pipeline. However, the record 6 Bcf/d export figure came not from an increase in exports on Sur de Texas, but rather from a recovery in transmission volumes on other southbound pipelines. The recent growth in US export volumes to Mexico has bolstered South Texas gas prices and could be a contributing factor behind the recent rise in cash prices at the US benchmark Henry Hub. In the week since the start of commercial service on the pipeline, spot market prices were up as much as 20 cents/MMBtu compared to prior 30-day averages.

What’s next? With recent maintenance- and commissioning-related declines on the NET Mexico and Nueva Era pipelines coming to an end, US exports to Mexico could remain around 5.8 Bcf/d to 6 Bcf/d or potentially move even higher in the days and weeks ahead. As export volumes continue to grow, gas prices in South Texas and at the Henry Hub could be expected to remain around current levels or possibly gain additional momentum.


3. Full stocks, LNG outlook weigh on European gas curve


TTF price Day ahead vs Winter 2019 Summer 2020

What’s happening? European prompt gas prices remain at historically low levels of around just Eur10/MWh given a well-supplied market, with storage facilities filled to almost 100% capacity and LNG expected to come to Europe in ever bigger quantities through the fourth quarter.

What’s next? Winter 19 prices are also trending downward – though they are still trading at a healthy premium to prompt prices – and are now at parity with prices for Summer 20. A mild start to winter in Europe, forecast last week by The Weather Company, could see the contract move closer to the prompt and bring down Summer 20 with it if storages remain well stocked.


4. German lignite, coal plant profitability poised to recover this winter


German fuel switching coal lignite gas 2019

What’s happening? Cheap gas and rising CO2 prices have pushed German coal- and lignite-fired power generation down the merit order this summer. Year to date coal/lignite generation is down 26%, while that for gas-fired generation is up 67%. Combined conventional generation, meanwhile, is down 13% on year as wind and solar continue to grow.

What’s next? The thermal merit order is due to switch into the fourth quarter of 2019 and Q1 2020, with German lignite plant firmly back in the money, and hard coal plant increasingly so as the quarter matures. Gas is not as cheap on the curve as the market prices in a breakdown in Russia-Ukraine gas contract talks, as well as winter heating demand.


Reporting by Philip Vahn, J. Robinson, Stuart Elliott and Henry Edwardes-Evans

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