Global Commodities: Day 31 and beyond

Natasha Kaneva (0:03)

Hello, and welcome to another episode at At Any Rate. I'm your host, Natasha Kaneva, and I had JP. Morgan Global Commodities Research. This week was headline heavy. So oil, for example, ended the week down 2 percent on signs that talks between the United States and Iran to reopen the Strait of Hormuz were progressing, as well as by headlines of higher than expected Saudi Arabian shipments.

The biggest story in the oil market, however, has been the US where diesel prices have surged past historical highs and distillate inventories at seasonal record lows. As a response, the idea of restricting US diesel exports has resurfaced again. Today, we'll be discussing the facts that such a move could have. In another corner of the energy markets, we have European natural gas, which has risen about 80 percent since June lows compared to about 50 percent for the crude. Here, the market is focused on Qatar and its ability to restart LNG capacity through the Strait of Hormuz.

So far, however, loadings have been minimal and liquefaction capacity utilization remains under 20 percent. To fill in the details, I'm pleased to host Otar Dgebuadze, who covers European natural gas for JPMorgan. Otar, thank you so much for joining us today.

Otar Dgebuadze (1:16)

Hi, Natasha. Thank you for having me.

Natasha Kaneva (1:19)

So Otar, starting with the natural gas market. So you're fresh from Bangkok, where you attended the gas tech meetings. You had a lot of meetings with both producers and consumers. So let's focus first on the general TTF price dynamics, leaving out most Qatar details and just focused on the European inventories and the injection season. So price is right now about 70 euros, yes, of today per megawatt hour. The last time we had our podcast with you, we're trading at about 80 euros. So how do you view the price?

Is it fairly valid? Is it too high? Is it too low? Where do you sit on that?

Otar Dgebuadze (2:00)

So TTF price is increasingly correlated with oil and geopolitical headlines over the last couple of weeks.

This week we saw quite a bit of sell-off in the price from 80 plus to closing at near 70 today. I think I associate this with two things. One is the geopolitical de-escalation.

The summit between President Trump and President Xi, and also the UN Summit, which was going on during the week, and expectations about some sort of geopolitical resolution. The other thing is that many of the market participants, we think, have been taking profits on their positions which were built over last few weeks at high 70s and 80 euro prices. When it comes to European fundamentals, European gas storages is about 70% right now. This is European Union average. And we have always been warning our listeners and our readers that we should look closer at the country level. And if we look at the country level, at the biggest storage country in Europe, Germany, is about 57% full. The second biggest country, Italy, is 87% full. This difference has never been so big, almost 30 percentage points. And this is what we are looking very closely rather than European Union average. The last time we saw such big difference in high 25, high 20s was in spring, was in spring of 21 and spring of 2018 when we were exiting cold winters and Germany being the more northern and more colder temperature country has been throwing down more inventories. But entering the withdrawal season, entering the winter with such a big difference is unprecedented. We think it creates a setup for high price volatility in winter in Europe, which will be driven by lower storage levels, especially in northern and northwest Europe and which will be amplified by the ongoing supply uncertainty and the winter weather uncertainty.

Natasha Kaneva (4:07)

Thank you, Otar. Otar, now we're just moving and focusing on what is happening in the Strait of Hormuz and Qatar.

Do you see any gas coming through? Do you see any boats coming through? If not, how would you explain this difference between? We do see oil flows. There's definitely some 8-10 million barrels per day still missing depending on what day you're looking at the data, but oil is flowing. Why is that not the case with Qatar?

Otar Dgebuadze (4:37)

For Qatar, we saw what we can track. There might be some margin of error here. We saw zero traffic in August. In September so far, we saw three transits, exits from Pormuz to Indian Ocean and one actually entry into the Gulf.

This was earlier this week when we did this analysis. Since then, there might have been one or two exits, but this is miniscule compared to the usual flows from Qatar. During the normal days before the war, we would see something like three, four vessels being loaded and exported to Hormuz. Now we are talking about three or four or maybe five or six throughout the month. Yes, there is a significant increase compared to last month, but in absolute terms, this is still very, very low.