Commodity Tracker: 5 charts to watch this week

The US Energy Information Administration released a bearish report for the natural gas storage, and anticipation develops around the upcoming report due later this week. S&P Global Commodity Insights editors are also keeping an eye on the implementation of price floors by Electric Reliability Council of Texas, renewable diesel outpacing biodiesel, and US offshore wind's setbacks and progress in Q3. Volatility in the European natural gas prices ahead of the upcoming winter is also in the spotlight.

1. Bearishness in US EIA natural gas storage might continue in next report

The US Energy Information Administration released a bearish natural gas storage report Oct. 19 for the week ended Oct. 13, when the US gas market posted an above-average 97 Bcf injection. Following the news, NYMEX November gas futures settled lower Oct. 19 for the seventh day in a row.

What's next: More of the same could be in store for the next report, to be released Oct. 26 for week ending Oct. 20. S&P Global Commodity Insights' gas supply-demand and storage models are already calling for an above-average injection to be reported by the EIA for the week. The upcoming injections to inventory are projected at an 80-85 Bcf range, compared with a five-year-average build of 66 Bcf in the corresponding week.

Further reading: US natural gas prompt-month futures close week further from October highs

2. New Texas power market floors to boost thermal generation revenues

The Electric Reliability Council of Texas is implementing price floors Nov. 1 for its operating reserve demand curve, designed to boost revenues when power supplies approach scarcity levels. The floors are $10/MWh when real-time on-line reserve capacity falls below 7 GW and $20/MWh when that number falls below 6.5 GW. Studies show that if the change had been in effect in 2022, it would have generated an extra $491 million for resources, mainly natural gas-fired generation.

What's next? Thermal generation will have greater incentive to offer power into the market during winter, especially during the hours just before dawn, when the ERCOT grid's surging solar power capacity begins to ramp up output.

Further reading: Texas power market to start price floors Nov. 1, helping dispatchable resources

3. D4 RINs fall to their lowest since late-2020, downtrend to continue in near-term

What's happening? Platts assessed current-year D4 bio-mass based diesel RINs at 79.75 cents/RIN Oct. 10, lowest since November 2020. A RIN or Renewable Identification Number is a unique serial number assigned to 1 gallon of biofuel for the intended purpose of tracking and enforcing the renewables fuels mandates as required by the Renewable Fuel Standard. US production capacity of renewable diesel and other biofuels hit 3 billion gallons/year, overtaking US biodiesel production capacity for the first time, according to the US EIA. This milestone has led to a significant increase in RINs generated as renewable diesel creates 13.33% more credits per gallon blended than traditional biodiesel. Meanwhile, the feedstock soybean oil and blendstock heating oil (BO-HO) spread has tumbled near 2023 lows, which has encouraged blenders to ramp up production and thus leading to an increase in RIN generation.

What's next? Growth in the renewable diesel market is expected to continue outpacing the biodiesel market in 2024. Renewable diesel is a second-generation biofuel and is more efficient, cleaner and has lower emissions than biodiesel. Favorable blending economics for biomass-based diesel producers should continue in the near-term helped by a lower BO-HO spread driven by Middle East geopolitical concerns causing higher energy prices.

Further reading: D4 RINs collapse in 2023, driving down prices in entire RINs complex

4. US offshore wind sees setbacks, progress in Q3

What's happening? In New England, offshore wind project developers canceled power purchase contracts for projects that would have delivered up to 2.4 GW of offshore wind generation to Massachusetts and 0.8 GW to Connecticut, the Business Network for Offshore Wind said in its quarterly market report. Meanwhile, on a positive note, during Q3, state offshore wind capacity goals and targets reached 86.9 GW, a 4% increase from Q2. As of now, 42 MW are operating.

What's next? The US market could finally see its first significant post-Inflation Reduction Act manufacturing investment in Q4, according to the report. The report said that the "most obvious candidate" is New York, which is expected to award new power agreements and possible investments in turbine blade and nacelle facilities. However, half of tendered offshore wind capacity is at risk of pushing its operational year beyond 2030, S&P Global power market analysts said.

5. European natural gas price volatility to carry over into the winter season

The Platts assessed Dutch TTF front-month contract jumped 45% to a 9-month high of Eur55/MWh Oct.13, despite near full European storage levels. This rally coincided with the start of the Israel-Hamas war, announced industrial action at Chevron's Australian LNG facilities, alleged "external activity" damaging the Balticconnector pipeline. A series of bullish news over the Oct.7-8 weekend sparked geopolitical and supply uncertainty in an already volatile natural gas market.

What's next? European natural gas prices may continue to be volatile, driven by political concerns and a general perception of increased supply-side risk despite high storage levels heading into the winter withdrawal season. While European gas storage levels stood at over 98% full as of Oct. 20, according to data from Gas Infrastructure Europe, the market remains "fragile and unstable," as price volatility remains driven by LNG supply risk and geopolitical developments, industry group the International Gas Union said Oct. 19.

Reporting and analysis by Jared Anderson, Markham Watson, Philip Herring, Jeremy Beaman, Karim Elafany, Nikita Pravilshchikov, Roudy Dirani