FACTBOX: One year of Ukraine war prompts sweeping shifts in Asian oil flows

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Downward pressure in seaborne Ukrainian grain flows through the Black Sea persisted during the week Jan. 9-15, with volumes declining 20% on the week to reach 490,825 mt, the lowest weekly level since mid-August, an analysis of UN's Black Sea Grain Initiative Joint Coordination Centre data by S&P Global Commodity Insights showed Jan. 16. "Usually, grain exports come back by the end of January, beginning February," said a chartering broker pointing to the typical period when new contracts are signed, noting, however, that regional players don't expect a significant improvement in grain flows or tonnage requirements due to the damage inflicted by the Russia-Ukraine war. In recent fixtures, Leda C, 2011 built, 81,526 dwt, was heard fixed to open Port Said Jan. 24 via Ukraine, redelivery Far East at $16,250/day or at $17,000/day and a $550,000 ballast bonus. The UN-brokered Black Sea Grain Initiative, signed last July by Russia, Ukraine and Turkey and renewed in November for another four months starting Nov. 19, enabled the resumption of exports of grains and other foodstuffs from the three key Ukrainian ports of Chornomorsk, Odesa and Yuzhny/Pivdennyi on the Black Sea, with cumulative grain shipments under the safe passage deal reaching over 17.4 million mt as of Jan. 15, according to JCC data. According to the JCC, the number of inspection teams remains at three, with plans to conduct nine inspections on Jan. 16, four on inbound vessels and five on outbound vessels. "Currently, 30 vessels are waiting for inspection: eight of them waiting to move into Ukrainian ports and 22 loaded with cargo waiting to sail to their global destinations. Seventy-nine applications for participation in the Initiative have been submitted," the JCC said Jan. 15. In addition to the lower volumes observed recently, the average cargo size during the period Jan. 9-15 shrunk 32% on the week to reach 25,833 mt, returning to mid-December levels, JCC data showed. The largest cargo observed during the week Jan. 9-15 was a 70,799 mt shipment of corn headed to China aboard the 83,007 mt dwt, 2006-built Cuma, which departed from the terminals of Yuzhny/Pivdennyi Jan. 13. The share of corn shipments eased to 43% of the total weekly flows during the period Jan. 9-15, in contrast to over 60% the previous week, remaining nevertheless the top grain type exported in terms of volumes, with wheat accounting for less than 20% and sunflower products almost 19%, data from the JCC showed. Barley and soya beans accounted for the rest. According to the JCC data for Jan. 9-15, Europe and Central Asia attracted over 48% of the grain volumes, with 27% of flows destined for East Asia and the Pacific and another 19% on its way to Middle East and North Africa. The remaining volumes were shipped to South Asia among other destinations, JCC data showed. In terms of income, the share of high-income destinations more than doubled on the week to reach above 32% of total grain volumes, according to JCC, with 3% of flows headed to low-income regions, and the majority of the remaining cargoes destined for middle income countries during the week Jan. 9-15. Flows remain subdued According to data from S&P Global Commodities at Sea, Ukrainian grain exports from the three key ports included in the Black Sea Grain Initiative continue to lag their pre-war levels in January, averaging close to 82,000 mt/day for the period Jan. 1-14, some 19% below their five-year January average for the period 2018-22, and almost 37% lower than the average daily levels observed during January 2022. In addition, the age of the vessels operating in the trade has increased significantly, reaching over 17 years during the first half of January 2023, compared with an average age of about 11 years for vessels trading in those ports during the same period over the past five years. Globally, dry bulk freight rates have been suffering on the back of persistent macroeconomic uncertainty and poor expectations for Q1 2023, with the Platts KMAX 9 Index, a weighted average of spot time charter equivalent rates on key Kamsarmax routes across the globe assessed by Platts, last standing at $7,451/d on Jan. 13, having slipped below $10,000/day earlier on Jan. 6 for the first time since November 2020, now trending 62% lower than the $19,684/d average for 2022. Platts is part of S&P Global Commodity Insights

The EU's ban on Russian oil product exports on Feb. 5 will transform markets and change trade flows in a manner more complex than the impact of the sanctions on seaborne Russian crude that came into force on Dec. 5, chief energy economist at the International Energy Agency said Jan. 11. "We need to be very watchful because the reconfiguration in global trade implicit in that oil product ban is going to be significantly more complex than what we have seen already on the crude side," Tim Gould said at the 13th Global UAE Energy Forum organized online by Dubai-based Gulf Intelligence. "When it comes to products, it's a more complex situation because as we are all aware, China and India are both oil product exporters, so you are not going to have the same, in a sense, safety valve for oil products as you do for crude." The G7 slapped a $60/b price cap on Russian crude alongside EU's own embargo on seaborne Russian crude exports on Dec. 5 in response to the invasion of Ukraine. "We are going to need to have a very complex reconfiguration of flows also in the Atlantic Basin with Europe taking more from Middle Eastern suppliers and from North America, and then potentially Russian oil product exports finding a home in parts of Latin America or in Africa," Gould said. "None of that is simple, there are quality specification issues. There are all sorts of tankers and storage issues that would make that very complicated." More resilient European refiners turned to crude grades from Norway, the US, Saudi Arabia, Guyana and Azerbaijan in 2022 to plug the growing gap left by Russian imports sidelined by Western sanctions on Moscow, according to tanker tracking data. Russian seaborne crude imports into the EU, Norway and the UK shrank by 80%, or 1.36 million b/d, in November and December compared to pre-war levels of 1.71 million b/d, according to data from S&P Global Commodities at Sea. The IEA is forecasting Russian output will fall by 1.4 million b/d in 2023 due to the impact of EU sanctions and the G7 price cap. "When we look at oil markets, it is undoubtedly true that Russian production and exports have been more resilient than we initially expected, but of course there are big changes afoot," Gould said. "It feels unlikely that we will get back to the way things were before in terms of Russia's relationship or position in the international energy world." G7 price cap Analysts at S&P Global Commodity Insights expect only minimal impact from the West's seaborne crude sanctions on Russian output. Russian supply losses could peak at 930,000 b/d below pre-war levels in March due to pending sanctions on fuel exports before production rebounds 400,000 b/d by the fourth quarter of 2023. Russia estimates that its oil output may fall 5%-7% in 2023 as a result of the sanctions. The G7 price cap is another factor that will impact Russian exports in 2023, Gould said. "We are watching very closely to see the extent to which traders and shippers are incorporating that (G7 price cap) into their decisions already for crude in December," Gould said. "There is a large degree of uncertainty how this plays out, but I think certainly it is going to be a big factor in the markets in 2023." Other wild cards in 2023 are the oil demand outlook as a result of China's lifting of COVID-19 restrictions despite a resurgence of the virus and the shape of the global economy, he added. The IEA expects global oil demand to grow 1.7 million b/d to 101.6 million b/d in 2023, with nearly half of that increment coming from China. Most of the 820,000 b/d oil demand growth in China in 2023 is expected to come in the second half of the year. IEA's SPR arsenal The IEA is also keeping the release of oil from strategic stocks as an option in 2023, Gould said. In 2022, the US initiated the largest drawdown in the history of its Strategic Petroleum Reserves, injecting 905,000 b/d into the market from mid-April through October, with additional drawdowns by other IEA nations raising global SPR flows to about 1.4 million b/d over the same period, according to S&P Global. The Joe Biden administration announced the SPR drawdown as it sought to shore up global oil supplies, help Europe curb its dependence on Russian oil imports, and ease domestic energy prices contributing to the highest US inflation in 40 years at the time. "There are still substantial stocks available to IEA member countries that can be deployed in case of necessity, and you can imagine that we will continue to keep a close eye on market developments and potential disruptions this year," Gould said. "That part of the arsenal is still very much intact. Some countries will look to replenish those stocks as and when it's prudent to do so."

The Asian high sulfur fuel oil market is likely to be bogged down for most part of 2023 by ample Russian supply, despite expectations of steady to strong demand, especially from the downstream marine fuels sector, several traders and analysts said. Russian-origin supply is likely to increasingly find its way east following a ban on the country's oil product exports in 2023. That could tilt the demand-supply balance more toward a market that's likely to be long than balanced, even with expectations of steady HSFO demand from the utility sector and even more so from scrubber-fitted vessels. "It looks like it's going to continue ... Russian barrels coming into Asia [and] weighing on the [HSFO] fundamentals," said a Singapore-based fuel oil trader with a Western company. "No big changes on the demand side, just a lot more supply." It may not, however, necessarily be all doom and gloom for the Asia HSFO market as there are factors that could come into play to support demand, traders said. China a possible swing factor Expectations that China's economy is likely to stage a rebound, even if gradual, would mean rising demand -- and output -- for middle and light distillate products. That may result in incremental demand for HSFO as a coker feedstock to produce relatively better margin products, traders said. Beijing has issued 18.99 million mt of export quotas for clean oil products in its first batch for 2023, S&P Global Commodity Insights reported Jan. 3, citing several sources with knowledge of the matter. The clean product quotas for exporting gasoline, gasoil, and jet fuel are 46% higher from 13 million mt issued in the same batch for 2022. Increased freight activity due to an economic upswing could also support bunker demand, traders said. Although high sulfur bunker fuel is estimated to account for only around 10% or so of China's total bunker demand, most of China's HSFO demand is met through imports, most of it, from Singapore. Russian supply Another factor that may support the Asia HSFO market is the slim likelihood that Russian refiners may cut run rates after the European Union's ban on Russian oil product imports Feb. 5, said traders. "If Russia [refiners] reduces run rates, then it might be bullish for the [HSFO] market going forward. If not, it might mean more coming in and the East market having to absorb more [Russian] barrels," said another Singapore-based fuel oil trader. Most market participants, however, said the trade flows that have emerged following Russia's war on Ukraine are likely here to stay, if not consolidate, by way of higher volumes getting shipped through the respective routes. "I don't think [the EU ban] would change the oil flow. Russia is selling much more to Singapore, than they are to Europe anyway, so what's the point of reducing run rate," said a Singapore-based fuel oil trader at a major shipping company. "[Russia] still has plenty of outlets ... it's just a little bit more difficult in terms of logistics, but not impossible, as demand for [relatively cheap] Russian fuel oil is still there. They still need the money," said a fuel oil trader at a South Korean refiner, suggesting that it was unlikely that Russian refiners would cut run rates. Russian HSFO fuel oil exports to Asia stood around 1.4 million mt in December 2022, up slightly from 1.3 million mt in November 2022, Kpler data showed. Downstream demand optimism High sulfur bunker demand is expected to be buoyant in 2023, extending a similar trend from 2022, traders said. Market optimism broadly stems from expectations that demand will see a further uptick from more scrubber-fitted vessels coming into operations in the near- to medium-term. "The delta between LSFO [low sulfur fuel oil] and HSFO has widened, allowing for a faster return on investment," a Singapore-based commercial manager at a shipping company said. The spread between the benchmark Singapore marine fuel 0.5%S cargo and the Singapore 380 CST HSFO cargo assessment averaged $261.09/mt in 2022, up from $119.69/mt in 2021, S&P Global data showed. Singapore's high sulfur bunker fuel sales rose 29.7% year on year to 12.42 million mt over January-November 2022, accounting for 28.4% of its total sales across all bunker grades, up from 25.8% in 2021, latest data from the Maritime and Ports authority of Singapore showed.

Seaborne Ukrainian grain flows through the Black Sea slumped another 22% on the week to reach 514,848 mt during the Dec. 12-18 period, with the average cargo size shrinking by 26% on the week to 25,742 mt, an analysis of UN's Black Sea Grain Initiative Joint Coordination Centre data by S&P Global Commodity Insights showed Dec. 19. "We'll probably see an improvement by February or March," said a shipbroker, pointing to unfavorable weather, harvest delays, and bombing as the major factors pushing weekly Ukrainian grain seaborne exports to the lowest levels observed since August. The UN-brokered Black Sea Grain Initiative, signed July 22 by Russia, Ukraine and Turkey and renewed earlier in November for another four months starting Nov. 19, enabled the resumption of exports of grains and other foodstuffs from the three key Ukrainian ports of Chornomorsk, Odesa and Yuzhny/Pivdennyi on the Black Sea, with cumulative grain shipments under the safe passage deal reaching almost 14.2 million mt as of Dec. 18. Declining significantly over the week, the size of the average shipment over Dec. 12-18 reached as low as 25,742 mt, dipping below the August – December weekly average size of 26,336 mt for the first time since early November. The largest cargo observed during week 50 was a 71,400 mt shipment of wheat headed to Indonesia on Star Emerald, 2019-built, 82,063 dwt, vessel which departed from the terminals of Yuzhny/Pivdennyi Dec. 15. Similar to last week, corn shipments dominated the Dec. 12-18 flows, accounting for almost 44% of total cargoes, with wheat accounting for almost 32% and sunflower products close to 22%, with the residual flows being soya beans. Notably, the share of high-income destinations halved to 30% of total shipments over Dec. 12-18, with over 40% heading to upper-middle-income destinations and less than 30% of the shipments reported to be destined for lower-middle-income destinations. Europe and Central Asia continued to attract the lion's share of the Ukrainian seaborne grain exports, reported at 52% of the cargo volumes during the week ended Dec. 18, with nearly 27% heading to East Asia and Pacific and about 11% destined for the Middle East and North Africa. The remaining volumes were shipped to South Asia, JCC data showed. On the back of significant macro-economic headwinds, dry bulk freight rates have remained weak, with the Platts KMAX 9 Index, a weighted average of spot time charter equivalent rates on key Kamsarmax routes assessed by Platts, last standing at $12,811/d on Dec. 16, almost 36% lower than the $19,956/d average for 2022 to date. Focus on successful JCC inspections "Since early November, the JCC has been deploying three joint inspection teams, with the exception of one day," said a JCC spokesperson to S&P Global inquiries. "The UN has requested an increase in team numbers, and the parties have been discussing this as well as how to improve efficiencies in inspections. However, we have not seen an increase yet." "We hope of course that the situation is going to improve but to see an improvement, the number of successful inspections per day needs to increase, which means the number of joint inspection teams needs to increase, too." "So, the backlog is predominantly linked to JCC's inspection capacity although bad weather has also contributed to several delays," the JCC spokesperson concluded. The JCC said late Dec. 18 that "84 vessels are waiting in Turkish territorial waters. Out of those 84, 65 are waiting to move – following inspections – into Ukrainian ports with the capacity to export approximately 2.5 million tons of grain and other food products." Some of the vessels have waited for over a month, with the remaining 19 vessels already loaded with cargo and awaiting outbound inspection. According to the JCC, the number of inspection teams has not increased and remains stable at three per day, with plans to conduct 12 inspections Dec. 19, split equally between inbound and outbound vessels. Platts is part of S&P Global Commodity Insights.

Ukrainian grain flows retreated in the week ended Dec. 11, plagued by inspection delays, which also saw the weekly average cargo size edging lower. According to S&P Global Commodity Insights' analysis of data from the UN's Black Sea Grain Initiative Joint Coordination Centre, seaborne Ukrainian grain flows through the Black Sea during the period Dec. 5-11 slid 21% week on week to 657,235 mt, with the average cargo size easing to 34,591 mt, down 5% on the week. The UN-brokered Black Sea Grain Initiative, signed July 22 by Russia, Ukraine and Turkey and renewed in November for another four months starting Nov. 19, enabled the resumption of exports of grains and other foodstuffs from the three key Ukrainian ports of Chornomorsk, Odesa and Yuzhny/Pivdennyi on the Black Sea, with cumulative grain shipments under the safe passage deal reaching almost 13.7 million mt as of Dec. 11. Market sources have been pessimistic regarding the progress made in accelerating flows, with the latest weekly shipments standing almost 9% below average. "Vessels still waiting for up to 30 days. It's all mainly JCC delay rather than port congestion," explained a shipbroker, with sources previously expressing optimism about stronger flows by mid-December. Also easing slightly on the week, average shipment during the period Dec. 5-11 stood at 34,591 mt, almost a third larger than the average weekly cargo size of 26,367 mt since the inception of the safe passage deal, indicating that market participants might feel more comfortable bringing larger assets into the trade. The largest cargo during the week was a 67,100 mt shipment of corn headed to China aboard the 2011-built, 80,310 dwt Aeolian Vision, which departed from Chornomorsk Dec. 8. The JCC said late Dec. 11 that "82 vessels are waiting in Turkish territorial waters. Out of those 82, 59 are waiting to move – following inspection – into Ukrainian ports with the capacity to export approximately 2.2 million tons of grain and other food products." Some of the vessels have waited for over a month, with the remaining 23 vessels already loaded with cargo and awaiting outbound inspection. According to the JCC, the number of inspection teams has not increased and remains stable at three per day, with plans to conduct nine inspections Dec. 12, one on inbound vessels and eight on outbound. The share of shipments destined for high-income regions during the week Dec. 5-11 hovered close to 60% of all cargoes, with almost 35% heading to mid-income destinations and less than 4% of the shipments reported to be destined for low-income destinations. As for cargo types, corn shipments dominated the Dec. 5-11 flows, accounting for almost 49% of total cargoes, with wheat cargoes claiming almost 18%, and rapeseed just above 13%. The remainder comprised sunflower products and other foodstuffs. Europe and Central Asia attracted almost 71% of the cargo volumes during the week ended Dec. 11, with 10% heading to East Asia and Pacific, and about 9% destined for the Middle East and North Africa. The remaining volumes were shipped to South Asia and sub-Saharan Africa, JCC data showed. At the same time, global dry bulk freight prices remain weak, with the Platts KMAX 9 Index, a weighted average of spot time charter equivalent rates on key Kamsarmax routes assessed by Platts, last standing at $13,223/d on Dec. 9, over a third below the $20,109/d average for 2022 to date. Tanker disruption brewing With the introduction of the G7 price cap on Russian seaborne crude Dec. 5, tanker delays have escalated after Turkey issued a notice dated Nov. 16 requiring all ships transiting or entering Turkish waters from Dec. 1 to provide letters confirming that insurance cover will remain in place under any circumstances throughout the duration of the transit or while the ship is in a Turkish port or waters. Consequently, delays for tankers transiting the Turkish Straits have jumped to the highest in almost a year, tightening tonnage availability elsewhere in the Med. Southbound tanker delays to transit the straits were assessed at 10 days on Dec. 9, unchanged from Dec. 7 but up from three days at the start of the month and the highest since Dec. 3, 2021, according to assessments by Platts. If the issue is not resolved this week, Med rates for Suezmax and Aframax vessels are likely to tick higher on the back of a supply shortage in the region. "Discussions are still in progress, but no common ground has been found as yet," a shipping source said. "Any sustained delays will certainly have a positive impact in the Med tanker markets." Platts is part of S&P Global Commodity Insights.

Waving goodbye to its historic symbiosis with Russia, Europe heads into 2023 facing a global tug-of-war for diesel supply. With low global diesel stocks setting supply and demand balances on edge, Europe is set to face Asia, the US, and Latin America in a battle for diesel barrels that will only add to price volatility in 2023. Global diesel stocks were playing catch-up even before Russia's invasion of Ukraine Feb. 24, emerging from the pandemic with demand having largely recovered but with immense losses to refining capacity, particularly in Europe. The Ukraine crisis sparked panic among diesel buyers, tightening the spot market and causing the steepest backwardation on record before a combination of high prices, economic weakness, a tapping of strategic reserves, and continuing consumption of the key industrial fuel restored some order. But fears of a renewed crisis simmer. Diesel and gasoil stocks in the Northwest European hub of Amsterdam-Rotterdam-Antwerp sat at 1.716 million mt, 24.9% below the five-year average late November and their lowest since 2008 for the time of year, data from Insights Global showed. Inventories elsewhere have faced a similar fate as demand outstrips supply, with diesel stocks across the Atlantic around 37% below the five-year average at the end of November and middle distillate stocks in Singapore around levels last seen in 2004 for this time of year, US Energy Information Administration and Enterprise Singapore data showed. Crisis, what crisis? Question marks remain over where Russian diesel might go -- and in what quantity -- as trade flows readjust following the start of EU import sanctions Feb. 5 that could halt 2.5 million mt of diesel, which currently continue to arrive each month. Analysts point to ongoing high prices as global arbitrage routes take time to rejig and potentially limited export destinations constrain Russian diesel production. How much this hits global balances could hinge on the global slowdown, with diesel key to industrial production. "In Europe, we expect 2023 FOB ARA diesel barge cracks to average well above the five-year range, at $43/b in first-half 2023, and $41/b in H2 2023," Rebeka Foley, an oil analyst at S&P Global Commodity Insights, said. Platts, part of S&P Global, assessed FOB ARA diesel barge cracks versus Dated Brent at $42.13/b Dec. 1, 154% above the five-year average. Bank of America's Head of Global Commodities Research Francisco Blanch was more bullish for early 2023. "Low diesel stocks, particularly in PADD 1 [US East Coast], and the risk of diesel supply disruptions from Russia point to a very tight outlook near-term, with a risk of diesel spiking to $200/b, from $150/b at present." BofA forecast European ultra low sulfur diesel cracks to average $57.50/b in the first quarter of 2023 before falling to $30 by the year's end as the economy slows, Blanch said. S&P Global's latest Oil Markets report showed cracks projected to remain above $40/b through Q4 2023 despite Western Europe's demand for diesel and gasoil contracting by 5.39 million b/d in 2023, with the biggest contraction in the third quarter at 5.52 million b/d. Russian alternatives With sanctions choking off Russian supply to EU countries, likely additional volumes will need to come from the Middle East, Asia, and the US. Sizeable arbitrage flows already come to Europe from the East of Suez, with arrivals in Europe surpassing 2 million mt in September and October, and around 1.75 million mt in November, according to shipping fixtures and Kpler data. While currently within historical ranges, flows to Europe are expected to increase when Russian supply ends as bullish price forecasts should attract high volumes of Asian barrels and more refining capacity comes online in the Middle East. Traders expect volumes from Saudi Arabia's Jazan and Kuwait's Al-Zour will help replace Russian volumes, once fully operational. The 400,000 b/d diesel-strong Jazan was initially expected to be fully operational by H2, 2020, but has faced severe delays and has not yet begun exporting diesel. The newly commissioned 615,000 b/d Al Zour refinery exported its first cargo of jet fuel Nov. 28, indicating startup of distillate units, and is expected to ramp up production through 2023. While the new capacity will eventually help offer some relief to middle distillate markets, "the bulk of this new supply will only become available quite some time after the EU ban on Russian refined products comes into force," said Warren Patterson, head of commodities strategy at ING bank said. Flows from the US Gulf Coast are also expected to step in to help plug the Russian product gap, but arbitrage economics are typically more unstable than those from East of Suez, with Europe competing with Latin America and the US Atlantic Coast via the Colonial pipeline. US Gulf Coast exports of ULSD to Europe surged 117% on the month to 484,200 mt in September, before crashing to 284,000 mt in October and rising to about 418,800 mt in November, shipping fixtures and Kpler data showed. The impact of the EU ban on refined products will depend on how quickly trade flows can adjust and whether there are willing buyers of Russian diesel and gasoil further afield, which would free up alternative supplies for the EU. "However, the quality of product and logistics could certainly complicate the necessary shift in trade flows," Patterson said, as potentially longer distances and quality requirements affect buying behavior. One thing looks clear, the European diesel market could still take some time adjusting to life without direct and immediate access to Russian barrels.

On this week's S&P Global Commodity Insights' Market Movers Asia with Ashna Mishra, Global Lead – Shipping Engagement & Intelligence * Oil markets keep close watch on China's COVID resurgence * Asia petrochemical makers eye polymer demand pickup from Europe * Quality concerns persist over Australia's bumper wheat harvest * Metals markets brace for release of softer China steel data Explore COP27 coverage

Ukrainian grain flows through the Black Sea declined during the week ended Nov. 13, a S&P Global Commodity Insights analysis of UN data showed, with markets still cautious until a clear renewal indication of the safe passage agreement is communicated from stakeholders of the Black Sea Grain Initiative. "The Black Sea is dead as there are almost no orders in the Panamax and Ultramax markets," said a shipbroker, explaining that participants have adopted a wait-and-see approach ahead of the Nov. 19 deadline for Ukrainian grain shipments, while Russian sellers have been less active. Indeed, the UN's Joint Coordination Centre reported that 525,699 mt of grains had been exported during the week ended Nov. 13, nearly 4% lower week on week and almost 55% below the mid-September peak in weekly levels, marking the lowest weekly export volume since mid-August. In addition, uncertainty has weighted on the size of the shipments too, as smaller vessels accounted for the majority of the runs, with the average cargo size for Nov. 7-13 shipments down 27% week on week to hit a three-week low of 25,033 mt, according to JCC data. The JCC reported late Nov. 13 that 61 inbound vessels were waiting to move, following inspection, into Ukrainian ports with the capacity to export approximately 1.5 million mt of grain and other food products; congestion appeared to have eased by nearly 20% over the weekend, with 76 vessels having waited in queue on Nov. 11. However, 10 loaded outbound vessels were still waiting for inspection in Turkish territorial waters as of late Nov. 13, three more than the evening of Nov. 11. Like the previous week, the largest cargo observed during the period Nov. 7-13 was a 62,900 mt shipment of corn departed from Chornomorsk Nov. 11, carried onboard the 75,200 dwt Nestor S destined for China. In terms of cargo types, wheat shipments dominated exports this week, accounting for 176,368 mt, taking the lead from corn flows, which reached 134,150 mt, with the remaining cargoes containing sunflower products, rapeseed and other grains. The proportion of shipments destined for high-income countries increased to 44% during the week ended Nov. 13, up from 41% the previous week, while almost 11% was destined for low-income countries, with the rest heading to mid-income destinations. As for regional destinations, Europe & Central Asia attracted over 41% of the shipments in the week, unchanged week on week, with almost 32% heading to East Asia & Pacific, from more than 41% the previous week, and an additional 26% destined for the Middle East & North Africa, from less than 18% the previous week. Market remains optimistic The UN-brokered Black Sea Grain Initiative, signed July 22 by Russia, Ukraine and Turkey, enabled the resumption of exports of grains and fertilizers from the three key Ukrainian ports of Chornomorsk, Odesa and Yuzhny/Pivdennyi from the Black Sea. According to the safe passage agreement, the "initiative will remain in effect for 120 days from the date of signature by all Parties and can be extended automatically for the same period, unless one of the Parties notifies the other of the intent to terminate the initiative, or to modify it." Previously, Russia said it had suspended its participation in the agreement in late October but since backtracked, and now market participants are focusing on the Nov. 19 renewal deadline. "The Black Sea Grain Initiative will be renewed, it's just that traders are not ready to take the risk at the moment," the shipbroker said. "There are too many vessels still waiting for inbound inspection -- some traders have to pay out millions in the compensation for the waiting time before the JCC inspection can be carried out." A ship manager expressed confidence that the safe passage agreement would be extended, "as there is no reason to do otherwise." "Probably Russia will get better conditions in an updated agreement, but we will see," the ship manager said. "At least I can see that cargoes are there in the ports, so shippers seem to be positive as well." Looking ahead, the JCC is planning to maintain steady personnel Nov. 14, deploying three joint inspection teams to carry out the procedures.

Asian LNG importers are experiencing high inventory levels and tank-tops, which refers to storage terminals reaching full capacity, on the back of a mild start to the winter season that has slowed downstream natural gas consumption, according to several traders and market participants. The tank-top situation is expected to be bearish for spot LNG prices and is resulting in LNG importers taking measures to delay shipments by extending the waiting time for LNG carriers or asking suppliers to push delivery dates further out until terminal capacity is available. Asian spot LNG prices have eased from recent highs when it was trading at over $50/MMBtu in August. Platts assessed JKM for December at $24.330/MMBtu Nov. 10. While it is still elevated, it's dropping to a range where more importers could be incentivized to boost procurement. South Korea's key LNG importer Kogas is facing tank-top, market sources in the country said. If the weather remains warmer than usual in Asia and demand in Europe does not pick up soon, the vessel congestions could get worse, they added. Some entities may need to defer the delivery window or rent other terminals to receive the term volumes in the event of a tank-top, a South Korean market participant said. At least one Japanese power utility said that it has chosen a later delivery window for its December delivery cargo because there's a high chance that high inventory levels will continue into next month. A second Japanese utility confirmed that its supplier had agreed to its request to delay the delivery of its cargo until December as downstream demand has not been that strong so far. Japanese month-end LNG stocks have been hovering above both year-on-year and the five-year average since May, according to the Ministry of Economy, Trade and Industry and latest data showed that Japanese power utilities had 2.53 million mt LNG stock at the end of October, compared with 2.66 million mt at the end of September. "We have a cargo discharging in late December, but a buyer is requesting to have it delivered in January instead," a Japanese trader said separately. China and India China used to be the last resort for most Asian LNG buyers who purchased surplus LNG cargoes ahead of the peak winter season, to sell cargoes at discount, but this outlet may not emerge this year as demand has been sluggish. On Nov. 9, PipeChina posted data showing spare LNG receiving capacity at its seven affiliated LNG terminals for December would be 6.5% higher than previously estimated, indicating underutilized terminal capacity. While lower Chinese LNG imports have been due to weak downstream demand and regulated gas prices, traders said December could see high inventory levels as well. "We are facing tanktop now because of some issues at Tianjin terminal, and cannot afford to add any more injections to our underground storage tanks. We want to issue a sell tender or offer cargoes but are concerned that weather remains mild and deferred cargoes arrive earlier [when storage is not available]," Chinese traders said. Other Chinese traders indicated that natural gas storage tanks in central and north China were high, but not to the extent of tank top. "Weather is warmer, so domestic downstream consumption is quite slow, but it could be colder towards late winter. A lot more cargoes being offered for the prompt in December could be floated into January," one of the traders said. Meanwhile, even in India, which has seen a sharp drop in spot LNG imports this year, importers have reported a tank-top situation at some terminals. Petronet LNG's Dahej LNG terminal and Shell's Hazira terminal are requesting end users to evacuate gas at a higher rate and postpone cargo deliveries by 3-4 days, Indian traders said.

Europe's jet fuel purchases from the Persian Gulf are on the rise as air travel demand improves and the continent replaces Russian barrels with other origins ahead of its February price cap deadline, boosting cash differential for spot barrels, market participants said. The EU is expected to place a price cap Feb. 5, 2023, on Russian refined oil products in the wake of Russia's invasion of Ukraine in February 2022. The Platts cash differential for Persian Gulf jet fuel/kerosene spot cargoes averaged plus $8.21/b to Mean of Platts Arab Gulf jet fuel/kerosene assessment in October, jumping more than 25% from September's average of plus $6.55/b, S&P Global Commodity Insights data showed. The Mediterranean's share of Europe's overall jet fuel imports has increased considerably in recent months. Cargoes flowing from the Persian Gulf to the Mediterranean have risen despite a marginal arbitrage disincentive, according to S&P Global's calculations of refined products arbitrage flows. The average arbitrage to ship Persian Gulf jet fuel cargoes to the Mediterranean stood at an incentive of minus $1.51/b in September and plus 14 cents/b in October. Shipping industry estimates show total jet fuel loadings bound for Europe from the Persian Gulf in November are expected in the 1.6 million-1.7 million mt range. Market participants, who track the movement of tankers loading jet fuel, said shipments were slightly above 1.5 million in August and September and are marginally higher than 1.6 million mt in October. The details about shipments over the last October weekend are expected in a few days and may bring the final number closer to 1.7 million mt. Several ports in the Mediterranean previously receiving gasoil and jet fuel cargoes from Russia on Medium Range tankers have substituted the volumes with Middle Eastern origins that are now mostly loading on Long Range 1 tankers, said an executive with a clean tanker company. MRs carry cargoes of about 35,000 mt, while LR1s can carry up to 65,000 mt. Close to a dozen European airlines that were regularly buying Russian jet fuel are in the process of substituting those volumes, another chartering executive said. Shipping sources tracking jet fuel deals said the share of Mediterranean deliveries in Persian Gulf jet fuel shipments to Europe likely climbed to 30% in October, from 22% in September and 16% in August. Tentative jet fuel fixtures and loadings in October indicate that Mediterranean-bound shipments may have reached 500,000 mt, double the August volume, a shipping executive said. The fixtures and loadings include loadings on tankers in the spot market and on ships, which trading and refining companies take on time charter, market sources said. But the surge in imports is not entirely linked to Russian sanctions as air travel demand has also rebounded. Asian jet fuel demand faces headwinds While healthy arbitrage flows have supported prices since the onset of the Russia-Ukraine war, sources said the Asian jet fuel market was still plagued by uncertainty stemming from a lack of transparency on China's export program and COVID-19 lockdowns and mobility restrictions. "China is a major uncertainty factor for the market right now," an Asian refinery source said, citing a lack of clarity over the country's COVID-19 curbs and refined product export quotas. Some trade sources estimate that Chinese jet fuel outflows could hit 2 million mt in November, while others anticipate potentially higher volumes because of patchy demand in the country. Aviation experts said the pace of air travel demand growth is expected to slow in the fourth quarter due to rising inflation and the waning effect of pent-up demand from the pandemic. "All this talk about revenger travel, it's not sustainable," Shukor Yusof, founder of aviation insights firm Endau Analytics said. Yusof and several other market watchers have warned that rising aviation fuel cost and global inflation is set to erode air travel demand as airfares continue to rise. The FOB Singapore cash differential had lost nearly half its value over a span of eight trading days to plus $1.69/b to Mean of Platts Singapore jet fuel/kerosene assessment Nov. 2, before rebounding to plus $1.99/b Nov. 4. The weakness was also reflected in the derivatives curve, with the November-December time spread narrowing 86 cents/b, or 24%, to plus $2.72/b Nov. 4 since the start of the month.

With global container shipping costs coming down, European polymer markets are seeing offers of material from the Far East rise, adding pressure to prices in an already oversupplied environment. S&P Global Commodity Insights petrochemicals editors Abdulaziz Ehtaiba, Hui Heng and Daniel Pelosi, and containers editor George Griffiths talk about the logistical landscape and the fallout it is causing in the polymer markets. Price assessments for this episode: PP Homo Inj FD NWE Spot Eur/mt - AALUR00 PP Inj CFR FE Asia - PHBIF00 Platts Container Rate 1 North Asia-UK Continent $/FEU - PCR0100 HDPE Film CFR Far East Asia - AATYE00 More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

As gas supply disruptions send shockwaves across the world, the ability and capacity to store energy has come under close scrutiny. Associate Director Paul Hickin discusses with gas and power editors Stuart Elliott and Kira Savcenko whether Europe has enough energy in reserve to get through the winter, the challenges of providing sufficient back-up from both fossil fuels and alternative sources, the knock-on effects to the rest of the world, and whether we might experience déjà vu this time next year. Useful price assessments: Dated Brent: PCAAS00 UK baseload front-month (GBP/MWh): AADGP00 TTF front-month (Eur/MWh): GTFTM01 More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

The UAE's Abu Dhabi National Oil Co. will supply German companies with LNG and diesel cargoes in 2022 and 2023 as Europe's biggest oil consumer seeks to diversify energy sources amid reduced supply of Russian gas and upcoming European Union sanctions on crude and oil product imports from Moscow. As part of a new Energy Security and Industry Accelerator agreement signed between the UAE and Germany, ADNOC will supply RWE with an LNG cargo in late 2022 to be used in the country's floating LNG import terminal in Brunsbuttel, state-run WAM news agency reported Sept. 25. ADNOC has also earmarked several other LNG cargoes for German customers for delivery in 2023, the agency said, without disclosing further details. The agreements were signed during a state visit by German Chancellor Olaf Scholz to the UAE, the second stop on a three-country trip that started in Saudi Arabia and will take him next to Qatar, where other energy deals are expected to be signed. ADNOC, which completed its first ever direct diesel delivery to Germany in September, has agreed to the terms with Wilhelm Hoyer GmbH & Co. on the supply of up to 250,000 mt of diesel per month in 2023, WAM said. German LNG demand As Russian gas deliveries dwindle from Nord stream, German utilities are working to diversify gas import portfolios and build up the limited import capacity for LNG. Uniper, RWE and EnBW on Aug. 16 signed a memorandum of understanding for gas supplies into the Wilhelmshaven and Brunsbuttel floating storage and regasification units, which are set to start operations this winter with a capacity of 12.5 Bcm/year. Germany is developing a total of five state-backed FSRU projects, but the focus is initially on supplying LNG into the Wilhelmshaven and Brunsbuttel sites. The FSRUs in Brunsbuttel and Wilhelmshaven are to be operated by RWE and Uniper. The reduction in Russian flows to Germany via Nord Stream since mid-June and then the complete halt in deliveries at the end of August have helped keep European gas prices at sustained highs. Platts, part of S&P Global Commodity Insights, assessed the Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh on Aug. 26. It was last assessed on Sept. 23 Eur179.20/MWh, almost three times higher than at the end of 2021. Oil products supply Before Russia's invasion of Ukraine in February, Germany was the world's second-biggest buyer of Russian crude after China, importing 687,000 b/d of crude and 149,000 b/d of oil products from Russia in November 2021, according to the International Energy Agency. Most of the crude was delivered via the northern branch of the Druzhba pipeline system from Russia, with smaller amounts arriving via tanker to Rotterdam and its North Sea ports of Wilhelmshaven and Brunsbuttel. Germany had already seen most of its refiners and oil importers switch away from Russian supplies since March. By mid-April, the government said the country had slashed its dependence on Russian crude to 12% of its imports from 35% before the invasion of Ukraine. The UAE energy producer has also signed agreements with German customers, including power plant operator Steag and copper producer Aurubis for the supply of low-carbon ammonia. The first cargo of low-carbon ammonia from ADNOC arrived in Germany Sept. 15 on its way to Aurubis, which will use the low-carbon ammonia as a feedstock in its wire rod plant. The demonstration cargo, produced by Fertiglobe, an ADNOC unit that produces fertilizers, is the first of several test cargoes to be sent from the UAE to Germany as the UAE energy producer expands its strategic energy partnership. Low-carbon ammonia delivery ADNOC plans to work with several German companies on hydrogen projects and signed deals with companies including Uniper, Aurubis and RWE as it looks to expand into Europe after having establishing export markets in Asia. ADNOC signed an agreement with German companies Hydrogenious and Uniper on March 21 on imports to Wilhelmshaven, covering 7,000-10,000 mt/year of green hydrogen shipments from 2025, as part of a demonstration project. ADNOC aims to supply up to 25% of Germany's imported clean hydrogen and derivatives such as ammonia. The UAE is also targeting a 25% share of the global green and blue hydrogen market by 2030. As part of agreements signed on Sept. 25, UAE's renewable energy firm Masdar will also explore opportunities to develop as much as 10 GW in offshore wind in the North Sea and Baltic Sea in Germany by 2030, WAM said.