Commodity Tracker: 4 charts to watch this week

Commodities markets continue to closely monitor U.S. inflation data, as Asian oil refiners await developments in U.S.-Iranian talks that would allow a resumption of crude flows from the latter country. In addition, British nuclear power and winter capacity, and soybean oil prices in South America.

1. Energy markets reflect on inflation trend: COVID phenomenon or structural change?

What is happening? Statistics from the United States Bureau of Labor released their consumer price inflation statistics for May which show continued acceleration in inflation. Headline inflation rose to 4.9%, while core inflation (excluding food and energy) rose to 3.8%, but from a low base due to the impacts of the pandemic. More revealing, headline inflation accelerated to 6.9%, on an annualized basis, over 3 months over 3 months, while the core accelerated to 5.2%. The acceleration has been beyond expectations: it indicates that inflationary pressure continues to build.

And after? The US Federal Reserve has already indicated that it sees these inflationary impacts as “transitory” and has set a framework for inflation to remain high and to focus on “average inflation” and sustainability against its target. by 2%. The rise in implied inflation has contributed to the continued rise in commodity prices. The debate is whether the rise in inflation represents the cyclical impact of the coronavirus or structural changes in labor markets and supply chains. If the impacts are more structural, this would encourage the FED to advance its schedule of reducing and increasing rates. These are currently defined by them as 2022-2023, but the market seems to be anticipating action sooner.

2. The return of Iranian crude could replace Mexican and Russian qualities in South Korea

Crude imports in South Korea and grades Mexico Russia

What is happening? South Korea has completely halted imports of Iranian crude and condensate since May 2019, and refiners including SK Energy and Hyundai Oilbank have since increased their purchases of Mexican Maya crude and Russian Urals Blend as alternative raw materials to Iranian heavy crudes and Forozan.

And after? South Korea likely to change crude oil supply and business strategy if sanctions against Tehran are lifted, with Mexican and Russian suppliers on the verge of losing much of their market share in the world’s fifth largest importer of crude.Major South Korean refiners have said Maya and the Urals could lose out when Iranian oil returns to the international market. The country’s refineries have all been primarily designed and configured to process sour crude from the Middle East, so it’s much more technically efficient to feed the systems with Iranian oil rather than crude from the Americas and Europe. industry and refinery sources said.

3. Another blow to UK power generation as Dungeness B closes early

Day-ahead base price in the United Kingdom

What is happening? British nuclear producer EDF Energy shut down its 1.25 GW Dungeness B nuclear power plant with immediate effect on June 7, throwing in the towel efforts to keep the aging plant going until 2028. has been offline since September 2018 in due to “significant and permanent technical challenges”. In particular, changes in the condition of the boilers that are difficult to access within the reactors themselves contributed to the final decision to close the site.

And after? While market participants have said the absence of Dungeness B has been built into contracts for the winter of 2021-22, its closure adds a downside to the deteriorating UK shippable factory outlook. By adding the anticipated shutdown of the Hunterston B and Hinkley Point B reactors by mid-2022, installed nuclear capacity in the UK will have fallen by a third from current levels to 6 GW by the end of 2022. “With Calon’s gas fleet slated to be out of service this winter and the Drax and West Burton coal-fired power plants only available in extreme conditions, we are likely to see a repeat of last winter’s price extremes ( see graph) in cold, still weather, especially if demand for electricity recovers from the limited lock-in levels seen last winter, ”said Glenn Rickson, European Power Analysis Manager at S&P Global Platts Analytics.

4. South America’s soybean oil base plunges as Chicago futures remain buoyant

South American soybean oil prices diverge from Chicago futures prices

What is happening? South America’s FOB soybean oil differentials or the basis of the corresponding Chicago Board of Trade futures have plunged to sizable lows due to a combination of rising CBOT contracts and demand for limited export, with firm prices in Argentina and Brazil still at historically high levels. Argentina’s FOB Up River base fell 1,100% year-on-year, while the Brazilian base FOB Paranagua fell 837% over the same period.

And after? Despite lower differentials or a lower FOB basis, absolute prices in USD per metric ton in Argentina and Brazil remain at high levels due to current levels in CBOT futures. Market analysts believe Chicago’s contracts are expected to remain supported by expected tight global inventories and the prospect of growing demand for biofuels in the United States as the country recovers from the economic impacts of coronaviruses.

Reporting and analysis by Alan Struth, Philip Vahn, Fred Wang, Charles Lee Henry Edwardes-Evans and Jose Roberto Gomes

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