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Red Sea Vessel Seizure Rattles Global Trade
The Nov. 19 seizure of a car carrier cargo ship off Yemen by Houthis rebels triggered the reemergence of war premiums for oil and shipping. The morning after the event, Brent futures opened higher, rising 0.72% to $81.19/b at the start of trading before moderating as the market considered ample storage supply and relatively slow demand growth.
"Crude has had almost no risk premium on account of the Israel-Hamas conflict for more than a fortnight. But this incident is likely to reinject some war premium," said Vandana Hari, founder and CEO of Singapore-based Vanda Insights.
Several LNG lifters taking US cargoes to Northeast Asia have little choice but to transit the Suez Canal as a historic drought has restricted the number of slots available through the Panama Canal. Other winter buyers of US LNG are considering the route around South Africa’s Cape of Good Hope to reduce risk.
An official with natural gas shipping company Kogas reported that there was little trouble for LNG carriers “using the Suez Canal at the moment, despite the seizure of a car carrier in the Red Sea, and the situation is unlikely to affect our consideration of shipping routes."
It takes 12-14 more days for an LNG cargo from the US Gulf Coast to reach Northeast Asia via the Suez Canal or Cape of Good Hope versus the Panama Canal. Costing $160,000-$165,000/day, these longer shipping routes can increase the cost of supply.
Galaxy Leader, the Bahamian-flagged vessel seized in the Red Sea, was chartered by Japanese company NYK Line and is partly owned by Israeli billionaire Abraham Ungar.
Luv Menghani, a shipbroker with Dubai BluePeak Commodities, said, “I’ll have to do more [know-your-client checks] when I'm offering my client a ship to see if there is any Israeli ownership involved. … Shipbrokers will have to get armed guards on board ships transiting these waterways a lot more than they used to, increasing costs."
It is not only Israeli-flagged or owned vessels at risk. Munro Anderson, head of operations at underwriter Vessel Protect, said all ships in this waterway face a "plethora of complex risks … [that] play a significant role in the current rates for maritime insurance."
Like the idiom popularized by “Games of Thrones,” market participants recognize that winter is coming. Seasonal demand from the heating sector could amplify price competition between Europe and Asia to attract additional cargoes from the US. In November, Northwest European prices increased 7.8 cents/MMBtu week over week.
As geopolitical tensions continue to rise and weather forecasts predict colder temperatures, global commodity markets are in for a potentially volatile period. Market participants will need to keep a keen eye on these developments and adjust their strategies accordingly.
Today is Thursday, December 14, 2023, and here is today’s essential intelligence.
Written by Ken Fredman.
Economy
Default, Transition, And Recovery: 2022 Annual Mexican National Scale Corporate And Public Finance Default And Rating Transition Study
Credit quality among S&P Global Ratings' Mexican national scale (CaVal) corporate ratings improved in 2022 compared to 2021, with upgrades rising to 9.2% in 2022 from 2.3% in 2021, and downgrades falling to 3.3% in 2022 from 3.9% in 2021. Public finance issuers saw much larger improvements in credit quality, with 17.9% upgraded in 2022, from 2.5% in 2021, and downgrades much the same year over year. This is largely because state and local governments in Mexico have been bolstered by the central government's fully funded federal transfer fund.
—Read the report from S&P Global Ratings
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Capital Markets
Venture Capital Investment Continues YOY Decline In November
The value of venture capital funding rounds worldwide dropped 34% year over year to $14.09 billion in November, the lowest November total since at least 2020, according to S&P Global Market Intelligence data. The number of rounds declined 25.6% year over year to 1,195.
—Read the article from S&P Global Market Intelligence
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Global Trade
Cricket Lovers Propel India's Nov Jet Fuel Demand Past Prepandemic Levels
India's appetite for jet fuel surged nearly 12% year on year in November as the festive season coupled with the world's biggest cricket championship sharply boosted demand for air travel, helping average monthly demand for the oil product surpass 2019 levels before the pandemic, analysts told S&P Global Commodity Insights. Data from the Petroleum Planning and Analysis Cell showed that the country's jet fuel demand stood at 690,000 mt, rising 11.7% year on year from the same period a year earlier at 618,000 mt. This took cumulative demand for jet fuel in the nine-month period to 7.32 million mt, up 18.8 % year on year from 6.16 million mt in the same period a year earlier.
—Read the article from S&P Global Commodity Insights
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Sustainability
Get A Holistic Lens On Sustainability
Make more informed sustainability decisions with deeper data — our indices are powered by analytics from the world-renowned S&P Global Corporate Sustainability Assessment.
—Watch the video from S&P Dow Jones Indices
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Energy & Commodities
Colombia Onshore Production Seems Stuck In A Decline Spiral
It has been more than one year since Gustavo Petro assumed the presidency of Colombia in August 2022 and presented in the Congress its ambitious tax reform, tightening the fiscal regime for E&P contracts. Four months later, the reform was approved, although with some changes and came into effect in January 2023. Among the industry players, expectations were that the new fiscal model, added to a green political agenda which wind down oil exploration, would reduce revenue from current and new projects.
—Read the article from S&P Global Commodity Insights
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Technology & Media
Tesla Fuels Electrification Of US Luxury Vehicles; Segment Share Hits Record 42.4%
On the surface, it would appear luxury consumers have embraced the electrification of the automobile. As a percentage of luxury vehicle retail registrations, electrified vehicles have climbed steadily through the pandemic to a record 42.4% in September 2023, according to S&P Global Mobility analysis of US retail registration data. This is up from 15% in September 2019 — with "electrified" registrations including battery-electric vehicles, plug-in hybrids and gas-electric hybrid vehicles.
—Read the article from S&P Global Mobility