Commodity Tracker: 5 charts to watch this week

Asian crude importers are hoping to secure cargoes from Middle Eastern producers following OPEC+'s decision to cut production quotas, while France is hoping to ease its fuel supply shortages with imports. In agriculture, eyes are on the Brazil elections and how its result could affect sugar and biofuels policies, as well as on the corn-or-wheat debate for feed makers.

1. Asian refiners reassess crude-buying strategy amid OPEC+ output jitters

What's happening? OPEC and its allies on Oct. 5 slashed their production quotas by 2 million b/d for the next 14 months. Asian refiners and key Middle Eastern suppliers typically negotiate specific term supply volume on a quarterly basis.

What's next? As European refiners absorb more US, North Sea and West African crudes to replace Russian Urals, Asian refiners are expected to depend more on Middle Eastern supplies. Feedstock managers and officials at refineries in India, South Korea, Japan, Thailand and Taiwan have indicated that they may need to ramp up spot market trades to cover any immediate cuts to their term Middle Eastern crude allocations, and step up efforts to fix minimum guaranteed volumes for the next six to 12 months.

2. Strikes hit France refineries, prompts gasoline and diesel imports

What's happening? Around 20% of service stations across France were having difficulties supplying fuel as of Oct. 8. Staff at French refineries are on strike causing the structurally oversupplied Northwest European gasoline market to tighten. The strikes helped push up both diesel and gasoline cracks in the Amsterdam-Rotterdam-Antwerp hub, according to S&P Global Commodity Insights analysts.

What's next? France, which typically has a surplus of gasoline, is looking to import the fuel in order to ease shortages at service stations. Diesel imports are also ongoing and the government has resorted to using its strategic stocks. Meanwhile ExxonMobil reported Oct. 10 progress in its talks with the unions, which could pave the way for the restart of its two refineries. TotalEnergies also indicated readiness to move the talks forward and has asked for the blockades at its sites to be lifted.

3. How elections in Brazil can impact sugar and biofuels markets

What's happening? The second round of Brazilian elections for presidency has a far-right candidate and incumbent President Jair Bolsonaro trying reelection against former President Luiz Inacio Lula da Silva from a left-socialist party. In the past, both have intervened to control fuel prices. Intervention ultimately leads mills to favor sugar production at the expense of ethanol and impacts global sugar prices. It can also compromise the commitment to mandates and decarbonization policies. With inflation mounting, and ahead of elections, federal and state fuel taxes were cut. Measures were also taken to reduce the price of Brazilian carbon credits, or CBIOs.

What's next? There is a proposal to extend the tax cut to 2023 if Bolsonaro is reelected. The future of the biodiesel mandate remains on the table, without definition on the reinstatement of the blend above 10%. No one of the candidates has declared a clear position on the future of the Renovabio program. As of 2024 a deficit of CBIOs is projected.

4. Feed makers mull wheat replacement of corn as spreads narrow but jury still out

What's happening? Feed wheat to corn spreads have narrowed since early September. The corn market has potential upside with a smaller US corn harvest and low water levels in the Mississippi threatening supply chain logistics. Australia, meanwhile, is expecting another record crop harvest which could lead to lower quality wheat, compounded by lesser fertilizer application resulting in lower protein yield.

What's next? The narrowing spread may spur demand for more feed wheat though feed buyers remain cautious as both markets are riddled with uncertainty. China may bring forward its timeline to import Brazilian corn while an extension to the Ukraine export corridor may see a correction in prices.

5. US container freight market seen easing further in Q4 as demand softens

What's happening? Most US import box rates found stability during the week to Oct. 7 after heavy losses in September, with Chinese factories and exporting operations largely shut for the Golden Week holidays. Sources are not convinced, however, that rates have hit a bottom.

What's next? US freight rates on the Far East-North America trade lane look to remain under pressure as market imbalances begin correcting and US importers have tepid volume outlooks through the rest of the year. S&P Global Commodity Insights projects rates on Platts Container Rate 13 – North Asia-to-West Coast North America – to slide further in Q4 and into the new year before leveling out in February 2023.

Reporting and analysis by Phil Vahn, Takeo Kumagai, Elza Turner, Virginie Malicier, Lucy Brown, Beatriz Pupo, Elizabeth Thang, David Lademan