Commodity Tracker: 4 charts to watch this week

Russia's seaborne crude oil exports, jet fuel demand, China's export quotas and the spread between European steel and raw materials are in focus this week.

1. Russian crude exports sink to two-year low as sanctions bite

What's happening? Russian seaborne crude exports fell to a two-year low in December, according to tanker tracking data, as Moscow struggled to redirect to Asia oil displaced by sanctions in European and G7 countries. Russian-origin crude loadings from Russian ports averaged 2.65 million b/d in December, down 431,000 b/d, or 14%, from November levels, according to data from S&P Global Commodities at Sea. Russian crude export flows fell across the board, the data showed, with exports also falling to China, India and Turkey, which have become Moscow's biggest oil buyers since the war in Ukraine.

What's next? Markets are watching potential sanctions evasion via the use of "shadow" oil tankers while the G7's price cap and EU embargo will extend to Russian oil product exports starting Feb. 5. Analysts at S&P Global Commodity Insights expected only minimal impact from the West's seaborne crude sanctions on Russian output, forecasting its crude and condensate production will fall just 160,000 b/d month on month in December. Russian supply losses could peak at 930,000 b/d below pre-war levels in March, however, due to pending sanctions on fuel exports before production rebounds 400,000 b/d by Q4 2023, according to S&P Global.

2. China issues first batch of 2023 oil product export quotas

What's happening? The Chinese government has issued around 18.99 million mt (151 million barrels) of export quotas for gasoline, gasoil and jet fuel in early January. The volume is 46% higher from 13 million mt issued in the same batch for and accounts more than a half of the total allocation of 37.25 million mt in 2022.

What's next? Due to limited quota availability in end-December, China was estimated to slash clean oil product exports to about 3 million mt to 4 million mt in January from about 6 million mt in December, information collected by S&P Global showed. With the fresh quotas, several sources with exporting refineries told S&P Global that they will lift clean oil product exports from their original plans but the total volume would still below the November and December. S&P Global analysts said the increase in export quota "is unlikely to tell the trend of China's exports in 2023 as it is unclear when the second batch will be allocated and how big the volume for this year will be." S&P Global expects China's clean product outflows in 2023 to be "more or less flat" from 2022.

3. Is jet fuel demand's full recovery finally on the horizon?

What's happening? Jet demand has been the slowest of the major fuels to return to pre-COVID levels worldwide. Toward the end of 2022, Latin America was showing the fastest recovery in jet demand compared to the rest of the world. In October and November, Latin American jet demand was just 1% below the same months in 2019, while almost every other region was still having double-digit deficits to 2019. Meanwhile, flight tracker RadarBox said global air travel has exceeded 2019 levels in the week to Jan. 8, the first time since the pandemic.

What's next? The trajectory for Latin America does not look like it is changing with the international segment improving month by month. The only headwind is if travel from the US slows as other countries open to foreign travelers and US travelers go elsewhere. Travel from the US is one of the reasons that Latin America's international segment has recovered better than the rest of the world.

4. European steel-raw materials spread rebound hangs on rising steel prices

What's happening? European hot-rolled coil steel and raw materials spreads rebounded 5.6% in December from November's two-year low, as spot prices for flat steel recovered. Platts HRC prices averaged Eur652.50/mt ex-works Ruhr in December, up 3.9% from November, and spot prices continued to rise through December and into January, aided by restocking for 2023 and firmer offer prices. Capacity reductions and idling at units across Europe contributed to tighter flat steel supplies and longer lead times, affecting spot availability for various grades, despite relatively soft underlying spot demand for coils in major distribution, processing and end-user markets due to economic uncertainty. Higher iron ore prices in December were offset partly by weaker coking coal while a stronger euro helped mills' import costs, which are typically denominated in US currency.

What's next? The upturn in the monthly European HRC-raw materials spread follows steel inventory destocking in the region across producers and distributors. HRC prices have moved up to Eur700/mt ex-works Ruhr Jan. 5, while iron ore and coking coal costs have increased, driven by stronger demand in China and India, as well as seasonally tighter cargo availability from Australia, North America and Brazil. These factors, along with December's rebound in ferrous scrap prices, could slow any further recovery in reference steel spreads, on top of energy, logistics and carbon costs. Derivatives markets Jan. 6 indicated higher HRC, coking coal and iron ore prompt futures pricing available compared with spot prices in December, which could add confidence around a recovery for spreads from November and Q4's low.

Reporting and analysis by Robert Perkins, Oceana Zhou, Zhuwei Wang, Sun Sijia, Robert Eisen and Hector Forster.