Commodity Tracker: 5 charts to watch this week

This week, S&P Global Commodity Insights editors are keeping a close eye on developments at the Panama Canal that impact shippers' costs, as well as the appetite of Asian buyers for US crude and LNG. Also in focus are Australia's carbon credit prices and Pakistan's foreign currency troubles.

1. Draught restrictions limit cargo volumes at the Panama Canal

What's happening? Water levels at Gatun Lake have fallen faster than predicted as the precipitation in the Panama Canal watershed is well below the historical average. The Panama Canal Authority imposed draught restrictions on ships transiting the Neopanamax locks, along with an escalation in the freshwater fee. Maximum authorized draft has been limited to 13.56 meters (44.5 feet) May 24, with the freshwater surcharge raised to 7.11% from 6.98%. The May 30 draft will be limited to 13.41 meters. The freshwater surcharge is expected to rise to 7.82% in the next 30 days.

What's next? Higher shipping costs and extended wait times at the canal amid transit volumes, as ships need to be lightered to meet draft restrictions, while charterers are starting to get concerned about demurrage charges. Seasonally, the low water levels should correct later in the summer and into the later fall.

2. US crude cargoes attract Asian buyers with competitive prices

What's happening? The Brent/Dubai Exchange of Futures for Swaps or EFS spread, a key indicator of Brent's premium to the Middle Eastern benchmark, has averaged $1.91/b to date in Q2, on course to setting the lowest quarterly average since $1.85/b in Q1 2021, S&P Global Commodity Insights data showed. A weaker EFS makes various sweet crude grades produced in the Americas, North Sea and Africa linked to the European benchmark more economical compared with Dubai-linked grades.

What's next? Multiple Asian crude importers are aiming to make the most of the narrowing Brent-Dubai price spread to take ample US crude cargoes, as light sweet North American grades priced against the European benchmark in the Asia-Pacific market appear more attractive than some Middle Eastern sour crude grades. South Korea, East Asia's biggest US crude customer, is looking to secure around 5 to 6 VLCCs/month of US crude, while Thailand aims to take up to 4 million barrels a month and Taiwan appears to be aiming for as much as 10 million barrels a month for Q2 and Q3 deliveries, refinery and trading sources said. Crude deliveries from the USGC to China are expected to reach 664,000 b/d this month, before hitting an all-time high of 920,000 b/d in June, according to shipping data provider Kpler.

Related content: US offshore terminal expansion challenged by growing global demand

3. Asia spot LNG prices tank

What's happening? A summer glut is keeping Asian spot LNG prices firmly under the $10/MMBtu level. The price drop has been significant and it is a big relief for Asian importers who have been reeling from high energy prices since the start of the Russia-Ukraine war. Platts, part of S&P Global, assessed the July JKM at $8.867/MMBtu and July JKM derivatives at $9.325/MMBtu May 29. The oversupply is being caused by several factors: a decline in European gas prices means that the region is not competing with Asia for LNG cargoes, high inventories in both East Asia and Europe are suppressing LNG imports, and both Japan and South Korea are relying more on nuclear power this summer.

What's next? The market continues to expect more selling than buying interest for the next few weeks, which indicates continued bearishness for prices. But prices may have to drop further to incentivize more demand from struggling economies. Favorable US LNG arbitrage to Asia means more supply is on the way and a further price decline. In the past, LNG prices below $45/MMBtu have triggered a contango play, a surge in floating storage, higher freight rates and even shut-ins or cargo cancellations by producers. On the demand side, many parts of Asia could still see record high summer temperatures in coming weeks.

4. Australian carbon credit prices fall to 2.5-month low

What's happening? The price for Australian carbon credit units, or ACCUs, has fallen to the lowest levels since the assessment was launched on March 1 on tepid buying interest and expectations of higher supply from developers exiting government contracts. The price for avoidance-based Generic ACCUs was assessed at A$35/mtCO2e and nature-based Human-Induced Regeneration ACCUs at A$35.50/mtCO2e May 29.

What's next? As project developers line up to exit their ACCU delivery contracts with the government, a small wave of supply is expected to enter the spot market in the near-term and may put a downward pressure on the price. The government is expecting contracts covering nearly 9 million ACCUs to be eligible during the latest exit window. The market is also facing uncertainty from the new rules being implemented by the carbon regulator for HIR projects.

5. Small batches of Russian crude set to arrive in Pakistan

What's happening? Pakistan continues to suffer from a severe shortage of foreign exchange reserves. The South Asian country is scheduled to receive around 750,000 barrels of Urals crude over the coming days, which would mark its first commercial-scale purchase of Russian crude oil as it looks to take advantage of steep discounts on the medium sour grade to save on energy import costs and dollar reserves. Refining industry sources based in Karachi and sour crude traders based in Singapore with close knowledge of Pakistan's crude trade flows indicated that the country may have acquired the Urals crude at a discount of as much as $20/b to Platts Dated Brent or Platts front-month Dubai on CFR basis, with a possible payment option in non-dollar currencies.

What's next? Government officials, refinery executives and Karachi-based analysts said short- or long-term deals with Russia to take crude and oil products at low prices would help reduce the nation's financial burden. However, Islamabad's plan to import more cargoes from Russia would hinge on rigorous assessments of the crude's yield of different distillation cuts and refining economics.

Related podcast: From Russia to Asia: Oil's new map may prompt policy rethink by OPEC+

Reporting and analysis from Barbara Troner, Alan Struth, Phil Vahn, Eric Yep, Kshitiz Goliya and Sambit Mohanty