Commodity Tracker: 5 charts to watch this week

Russian crude imports to India are reaching a saturation point. The EU's gas market correction mechanism has been extended to other trading hubs in the region. Asia's aviation industry continues to recover.

1. Russian crude exports hit 12-month high

What's happening? Russian seaborne crude exports rose 8% on the month in April to a 12-month high. Indian refiners snapped up record volumes of discounted Russian oil displaced from Europe due to sanctions, according to S&P Global Commodities at Sea data. Russia-origin seaborne crude exports averaged 3.76 million b/d in April, the highest since April 2022 and 22% above average pre-war levels of 3.1 million b/d. India imported almost 2 million b/d of Russian crude in the month, the data shows, a 14% jump from March imports and a fresh record high for Russian crude flows into the country. The surging Russian flows to India come despite narrowing discounts for Moscow's key Urals export grade. The Platts-assessed Urals DAP West Coast India discount to forward Dated Brent narrowed from $15.95/b on March 30 to $13.50/b May 2, the tightest spread since mid-January when the differential assessment was first launched.

What's next? Russian crude flows to India are now reaching a saturation point for the local refining slate, according to S&P Global Commodity Insights analysts. Russian oil now accounts for almost 40% of Indian crude imports, which is close to the estimated maximum of 40%-45% that refiners could technically process given the quality of the crude. The outlook on Russian crude flows to India in 2023 appears to be healthy and may account for around 30% to 35% of India's total crude oil imports, as long as the price remains competitive compared to other sources such as those from the Middle East and Africa, according to S&P Global estimates.

Related content: Sudden spurt of Russian crude flows to India calls for better price discovery

2. EU gas market correction mechanism extended to other hubs

What's happening? The EU's gas market correction mechanism now applies to trading hubs other than the Dutch TTF after an implementing act adopted at the end of March came into effect on May 1. This means that other EU trading hubs are now subject to the mechanism, which would be triggered if the TTF month-ahead price exceeded Eur180/MWh for three working days and the month-ahead TTF price was Eur35/MWh higher than a global LNG reference price at the same time. The European Commission said that extending the mechanism to other hubs would enhance protection of the single market by avoiding potential market "distortions".

What's next? The market correction mechanism was designed to shield buyers from sky-high prices but since its introduction prices have come well down from the record levels of last summer, thanks to a mild winter, high storage levels and demand cuts. However, the market remains tight with ongoing concerns over European gas supply security for next winter, leading market observers to warn of the potential for higher prices.

3. Asian international aviation recovery picking up

What's happening? Overall Asian aviation continues to pick up with the average for April being nearly 5% above pre-pandemic level. There has also been an acceleration in international Asian aviation with average April traffic down only 24% relative to pre-pandemic norms. The initial improvement was fueled by a pickup in Japan, Australia, South Korea and other key Asian countries as their economies reopened. China was slower to pick up due to its zero-COVID tolerance policy that was lifted only in December 2022, its aviation sector has also been recovering this year. Although China's April international air traffic was down 33% from pre-pandemic levels, domestic air travel averaged 24% above pre-COVID volumes.

What's next? Global jet/kerosene demand in 2022 gained almost 900,000 b/d, but Asian demand gained only 30,000 b/d with China's demand having declined about 220,000 b/d. This year, total global jet/kerosene demand is expected to gain about 840,000 b/d with Asian demand gaining 520,000 b/d -- about 390,000 b/d already recorded in Q1. China's demand growth in 2023 is expected to be 230,000 b/d, with the Q1 gain only having been about 75,000 b/d. In Q2 this is expected to improve to 250,000 b/d. There is still an expected uplift potential in Asian international travel that will play out and which should support year-on-year gains of 500,000-600,000 b/d for the rest of 2023.

4. Indonesia's May gasoline demand expected to fall

What's happening? Gasoline sales in Indonesia have been slower than expected, despite March and April being a peak demand season in the country due to Ramadan and Eid al-Fitr celebrations. The US dollar's strength against a wide range of East Asian currencies and high consumer prices continue to hurt household and private spending across Indonesia and limit oil product imports from key supply sources including South Korea and Singapore, said industry sources, including a fuel distribution manager at Indonesia's state-run Pertamina. Indonesia's annual inflation rate eased to an 11-month low of 4.33% in April, but the rate remained above the central bank's target of 2%-4% for 11 consecutive months.

What next? Southeast Asia's biggest oil consuming nation is expected to import around 9.5 million-10.5 million barrels of gasoline in May, down from an estimated 12 million barrels in April, according to industry sources surveyed by S&P Global. In addition, Pertamina has delayed the purchase of a few gasoline cargoes to June amid high inventories and slower-than-expected domestic demand. Among the region's top automotive fuel suppliers, South Korea may struggle to sell more than 1 million barrels to Indonesia in the second quarter, compared to the average quarterly shipments of 1.9 million barrels in 2022, refinery and trading sources said.

5. Asia corn prices continue to trend lower on massive Brazilian crop, decimating feed wheat demand

What's happening? CFR North East Asia prices have been falling since mid-April to prices not seen since end-2020. Pressure is coming from the massive Brazil corn crop -- estimated at 125 million mt or 8% above the previous season -- resulting large exports, including the continuation of the Brazil-to-China flow that started in December 2022. Reduced production in Argentina was not sufficient to support prices while weak demand owing to animal health, recessionary fears and high costs of financing will quell high hopes of price recovery. Corn FOB basis in Brazil had been supported by news of China cancelling more than 300,000 mt of US corn for 2022-23 delivery but bearish views on the premiums market still linger.

What's next? Industry players will keep an eye on what is happening in the Brazilian soybean market. Soybean exports will pose logistical challenges as Brazil handles two bumper crops in a calendar year. Asian price is expected to continue to come off the inverse curve and feed wheat demand will be crippled with corn trading at a hefty discount. Feed buyers will look to maximize corn usage in feed rations and will leave wheat sellers with a dilemma: to chase low corn prices or carry over feed wheat stocks.

Reporting and analysis by Robert Perkins, Sambit Mohanty, Stuart Elliot, Alan Struth, Phil Vahn, Melvin Kwok