India’s demand for transport fuels is in focus, with expectations of further growth through 2023 and beyond. Elsewhere, Germany auctions offshore wind concessions, China’s hydro power generation is poised to recover, and soft commodity prices continue to rise.
1. India fuel demand buoyant amid bright economy and infrastructure growth
What’s happening? India’s oil products demand rose by 238,000 b/d or 4.8% on the year in the first six months of 2023, mainly led by growth in diesel sales. Diesel, the most consumed fuel in the country, is seeing robust growth due to solid economic fundamentals and an ongoing government push for infrastructure development. Gasoline and jet fuel also remain significant contributors, and the three transport fuels combined are expected to account for more than 90% of oil demand growth in 2023.
What’s next? Oil demand should continue rising, supported by economic growth with more focus on industrial and construction activity and ongoing strength in agricultural activities. While Q3 is expected to see a seasonal dip due to the monsoon season, Q4 should again see good demand, led by festivals in the country. Overall, S&P Global Commodity Insights expects 2023 demand to be 7% above 2019, rising to about 11% in 2024.
2. Big oil cleans up in German offshore wind auction
What’s happening? Oil majors BP and TotalEnergies swept the board in Germany’s biggest offshore wind auction to date July 12, offering $14 billion in total for 7 GW of concessions across three North Sea zones and one in the Baltic Sea. With 2030 connections guaranteed, the wind farms are forecast to produce enough power for 15 million electric vehicles, aligning neatly with the German government’s 2030 EV target. In actuality, the power is likely to be linked to decarbonization of BP and TotalEnergies refineries, in part via production of green hydrogen.
What’s next? Germany is to auction another 1.8 GW of offshore wind concessions this August, with German utility RWE holding pre-entry rights for 900 MW of the total. All these awards are at zero subsidy to state, making earnings projections key to viability. Capture prices for German offshore wind are forecast to fall from a Eur96.97/MWh average in the first half of 2023, according to Platts’ Renewable Energy Price Explorer. On the flipside, Berlin expects demand for power to rise by almost 50% by 2030 with EVs, heat pumps and electrolyzers at the core of its climate policy. The mega-projects are part of its 30 GW offshore wind target to help phase out coal early, a bullish factor for future power prices.
3. China’s hydro power generation set to improve
What’s happening? China’s hydro power generation for May was only 108 average gigawatts (aGW), a decline of 52 aGW year on year. Hydro generation in May 2022 was higher than normal, but the May 2023 output is still lower than usual with utilization rates of installed capacity at 26%, well below the average for the month over the last five years, of 40%.
What’s next? Hydro power generation should be improving across the country. On July 4, the China Meteorological Administration said that Yunnan, which during the first five months of the year had the strongest drought since 1961, had seen significant precipitation since June 9 and the drought had eased. Furthermore, on July 5 the Chinese president announced that there was risk of flooding for all the seven largest rivers in the country.
4. Softs prices surge further in June as overall agricultural market remains bearish
What’s happening? S&P Global Commodity Insights’ Softs Index rose for the seventh consecutive month in June, increasing by 4.0 points month-on-month — and 20.7 points year on year — to 126.0. The rise comes amid expectations of poor cocoa and coffee harvests in major producing regions due to the El Nino weather phenomenon, which has led to dry weather in West Africa and northern South America. While sugar price increases tapered off in June, El Nino-linked droughts remain a concern, especially in Thailand.
What’s next? Despite multi-decade price highs for softs, S&P Commodity Insights’ Food & Beverage Index fell for a fourth consecutive month in June, dipping by 0.9 points to 108.5. This was led by both grain and dairy prices decreasing substantially in recent months. However, with these markets being viewed as close to (if not at) bottom, it is unclear how much longer the overall food and beverage market’s bearish undertone can continue.
Reporting and analysis by Himi Srivastava, Zhuwei Wang, Andreas Franke, Andre Lambine, Peter Storey
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