Recent geopolitical tensions in the Middle East, particularly involving Israel, Hezbollah, and Gaza, along with Russia’s new nuclear doctrine affecting the Ukraine war, have put pressure on the energy market. Despite this, the energy sector has shown resilience but is trending downward.
The U.S. Federal Reserve recently cut interest rates by 0.5%, following the European Central Bank’s 0.25% reduction, which helped ease market conditions. Additionally, China’s announcement of a new stimulus plan and interest rate cuts has bolstered support, particularly for oil. Lower energy prices are contributing to decreasing inflation in the U.S. and Eurozone, aligning with the goal of reaching a 2% inflation target.
The U.S. dollar has weakened overall, while the euro has stabilized above $1.10, currently at $1.1150. Brannvoll ApS anticipates the euro will remain within a range of $1.00 to $1.15, averaging around $1.10 in 2024.
Oil Market Insights
A weaker U.S. dollar and ongoing geopolitical tensions have provided some support for commodity markets. While the recent interest rate cuts and China’s economic stimulus have offered relief, OPEC is not expected to increase its output due to significantly lower demand forecasts. Concerns about reduced demand and excess supply from non-OPEC nations have pushed oil prices down, testing the $70 per barrel mark once again.
Saudi Arabia seems to have abandoned its $100 oil target. If OPEC+ shifts its focus to gaining market share rather than maintaining stable prices, Brent crude could plunge to between $50 and $60. Currently, Brent oil remains unchanged at $71.50, with a trading range adjusted to $70-$80. Key support is identified at $70; a break below this level could lead to a further decline toward $65. Brannvoll ApS has revised its trading range for 2024 to $70-$100, lowering the average price to $75.
Coal Market Dynamics
Contrary to oil trends, coal prices have increased due to seasonal demand and colder weather. ARA stocks have hit a two-year low, prompting some restocking efforts. South African coal is entering the market, while Colombia and Russia compete for market share, keeping prices in check. China and India plan to significantly ramp up domestic coal production in response to rising power demands, particularly from electric vehicles. Indonesia has also been boosting its coal exports.
Despite a slight retreat from peak prices, coal supply remains stable. The API2 FQ4 contract saw a 3% month-over-month increase, reaching $118.25, with a short-term trading range of $110-$125. The Cal25 contract also rose by 2.5%, reaching $122. Brannvoll maintains a price range of $100-$130 for coal, with an average projected price of $125.
The API4 FQ contract increased by 4% to $114.50, trading within the $100-$120 range, while the Cal25 contract rose 1% to $120. Brannvoll ApS forecasts a range of $100-$135 for 2024.
Petcoke Price Trends
Petcoke prices have significantly dropped, continuing their downward trajectory in September. Prices fell below $60, primarily due to oversupply from U.S. producers and others. Buyers are holding back on their bids, expecting further price declines, which has driven high-sulfur petcoke contracts down to $50.
China’s uncertainty over a proposed ban and a lack of demand from Chinese buyers have further pressured prices. Meanwhile, Venezuela is offering medium-grade petcoke at steep discounts, attracting interest from Indian buyers, as evidenced by recent large trades.
Support is expected to hold at the $48-$50 level, with no anticipated decline to the long-term trend of $40. Brannvoll notes that the discount for petcoke relative to coal FOB and ARA is substantial, suggesting that with rising coal prices and falling petcoke prices, petcoke’s discount could decrease rapidly.
The UGC FOB 6.5% S contract fell 12% month-over-month to $50, with the discount to API4 widening to 65%, nearing its all-time high of 73% in 2022. The USGC ARA 6.5% S contract decreased by 10% to $75.50, with a 49% discount. The USGC FOB 4.5% S contract dropped 11% to $56, with the discount to API4 increasing to 61%. The CFR ARA 4.5% contract declined by 9% to $81.50. The spread between the 6.5% and 4.5% S contracts remains steady at $6, within a range of $4-$8.
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