Commodity Tracker: 4 charts to watch this week

This week's Commodity Tracker features Kazakhstan's oil production and supply routes, grain exports through the Black Sea, Asia's appetite for US oil, and Europe's tight gas market ahead of winter.

1. Kazakhstan's ties with Russia crucial issue for oil markets as leader gets second term

What's happening? Kazakh President Kassym-Zhomart Tokayev has won a second term in office after a snap presidential election. He's hoping to reassure the world on his country's role as a reliable, long-term destination for investment and a growing oil producer. Kazakh crude export volumes have fluctuated significantly in the wake of Russia's invasion of Ukraine, and prices for oil shipped via its key export route, the Caspian Pipeline Consortium, have traded at sizeable discounts.

What's next? S&P Global Commodity Insights sees Kazakhstan's ties with Russia as the most crucial issue for oil markets in Tokayev's second term. Kazakhstan is seeking alternative supply routes, with the Baku-Tbilisi-Ceyhan pipeline from the Caspian Sea to Turkey's Mediterranean coast so far the most promising. Analysts at S&P Global see these diversification efforts as having only a slight impact in the short term.

2. Ukrainian grain exports through the Black Sea recover

What's happening? UN-brokered safe passage agreement was eventually renewed for another four months starting Nov. 19, despite lingering uncertainty over whether the negotiations would be successful. The Black Sea Grain Initiative framework has enabled nearly 1,000 inbound and outbound voyages and allowed over 10 million mt of grains and foodstuffs to reach the global markets.

What's next? Global agriculture market stakeholders are now focusing on ways to boost fertilizer supply, with higher natural gas prices in Europe, a key input to fertilizer production, as well as with potential disruptions in the Russian fertilizer supply chain following the outbreak of the Russia-Ukraine war earlier in February having triggered concerns regarding an emerging fertilizer supply-demand imbalance. The renewed deal could also address concerns of dry bulk market participants, who have expressed doubts as to whether the Black Sea Grain Initiative could provide enough support to easing freight rates.

Related infographic: Infographic: Black Sea grain shipments at crossroads ahead of safe passage renewal deadline

3. Share of US crude in Asia's import basket drops

What's happening? US crude flows to Asia from January to September rose modestly to 1.47 million b/d from 76,000 b/d in the same months last year. But in terms of market share, Asian crude imports from the US fell to 42% in January-September 2022 from 48% the same period in 2021. Analysts said this is a sign that reflects buyers have looked elsewhere to meet the incremental demand so far this year.

What's next? Analysts at S&P Global said Asian buyers will compete for US crudes if the arbitrage makes sense, particularly for countries that are not importing Russian crudes. Meanwhile, oil market stakeholders will be watching how much Russian crude will hit global markets once the G7 price cap and EU sanctions come into force. US crude exports are expected to average 3.5 million b/d this year, before rising to 3.7 million b/d in 2023, with flows to Europe likely to increase as EU's sanctions on Russian crudes take effect, according to S&P Global.

4. European gas market remains tight ahead of winter

What's happening? A mild start to the European winter and full gas stores has seen global gas prices deflate from August's record-highs. Europe's TTF gas benchmark maintains a premium over key LNG markers like Platts JKM and DES NWE, but Europe's lack of Russian pipeline gas and LNG outages in Freeport, Texas and Malaysia keep the market tight ahead of winter.

What's next? Europe's frenzied market intervention drive will see first details of a proposed price cap on the TTF as well as the design of the new LNG benchmark index developed by the European Commission at the Nov. 24 EU energy minister council. On the supply front, new long-term contracts are expected for US LNG supply to the UK, while Germany may still pursue Qatari supplies with the FIFA Football World Cup in world's biggest producer of LNG in 2022 getting underway.

Related blog: The LNG games: Changing market dynamics make for intriguing World Cup fixtures

Reporting and analysis from Rosemary Griffin, Nikolaos Aidinis Antonopoulos, Sambit Mohanty, Phil Vahn, Oceana Zhou, and Andreas Franke