Commodity Tracker: 4 charts to watch this week

China's zero-COVID policy weighs down on the country's oil demand prospects, while third-party certification of natural gas production gains momentum in the US. Europe's polymer imports from Russia amid the war in Ukraine and Indonesia's palm oil exports are also in focus.

1. China's Q2 oil demand to fall by 7.8% on year

What's happening? China's road transport and aviation sectors started to rebound in May from a month-ago level on the back of easing COVID-19 lockdowns and movement restrictions nationwide. However, the promising recovery in May so far stands insufficient to make up for the oil losses in April, as it was tarnished by the largest scale of COVID-19 lockdowns in major Chinese cities since February 2020. Analysts at S&P Global Commodity Insights estimated that China's oil demand contracted by 11.5% or 1.7 million b/d on the year to 13.35 million b/d in April, posting the lowest level since March 2020.

What's next? Demand in May will likely recover by nearly 900,000 b/d on the month due to the easing of lockdowns. However, it will stay 9% or 1.4 million b/d lower on the year due to the removal of lockdowns at varied pace and stages to contain the omicron spread. S&P Global analysts expect oil demand in Q2 to decline by 7.8% on the year. Stimulus plans will likely support China's oil demand to grow by 3.8% or 600,000 b/d on the year in H2 2022, but downward pressure remains due to the country's zero-coronavirus policy stance.

2. Haynesville emerges as key US hub for certified gas

What's happening? Third-party certification of natural gas production continues to gain momentum in the US, with producers publicly committing to certify over 20 Bcf/d of production by yearend. Around 95% of the public commitments have been concentrated in two gas pure play production areas: Appalachia and the Haynesville. While Appalachia is set to certify more gas on a volumetric basis, the Haynesville now leads the way in terms of percentage of in-basin production. The East Texas-Northwest Louisiana basin has the advantage of proximity to proposed and existing Gulf Coast LNG export terminals and has, as new satellite-driven methane intensity data from S&P Global Commodity Insights showed, among the lowest methane emissions profiles in the country.

What's next? Amid increased investment in Haynesville gas production and newly proposed transport infrastructure to move gas south to Gulf Coast demand, third-party certification may give Haynesville producers a competitive edge in marketing gas to environment-conscious LNG offtakers.

3. EU imports of Russian polymers increase despite Ukraine invasion

What's happening? EU27 imports of Russian polyethylene and polypropylene – the most widely used polymers – rose to record highs in March despite Russia's invasion of Ukraine, Eurostat data released May 16 showed. Despite the shunning of Russian material by some end-users, traders were happy to take discounted Russian product while Russian sellers looked to liquidate stocks held destined for European markets, particularly in eastern Europe. Conversely, exports to Russia sunk to multi-year lows as sellers looked to swerve reputational damage as well as logistical and financial hurdles in selling material to Russia. Russia had significantly increased sales of polymer products to Europe in 2020 and 2021, as part of a strategic pivot to Europe from Asia by major producer SIBUR.

What's next? An EU import ban on Russian PP looks set to limit product flow ahead of the deadline for existing contracts of July 10. Though exports to Russia have not been prohibited by sanction packages, market sources describe challenges navigating the restrictions on dealing with Russian banks and expect flows to fall further during April and May as sellers adjust their trade flows away from Russian entities.

4. Indonesia lifts ban on palm oil exports

What's happening? Indonesia announced that it will resume exports of palm oil from May 23 albeit with a condition that producers reserve 10 million mt of cooking oil and crude palm oil supply for domestic needs. While Indonesia's return has ended a big supply uncertainty in the vegetable oil market, crude palm oil futures initially rose on May 20, the August contract fell marginally by afternoon trade on Monday.

What's next? Malaysia, Indonesia's key rival in the palm oil market, is still selling near-term physical contracts for palm oil. Trade sources said high prices and rising production costs in both countries Indonesia and Malaysia, which together account for 85% of the world's palm oil exports, will limit bearish sentiment in the market.

Reporting and analysis by Zhuwei Wang, Kang Wu, Kelsey Hallahan, Emmanuel Corral, Callum Colford, Daniel Pelosi, Aditya Kondalamahanty