Today’s Trading Playbook
KEY THEMES
The fallout of Europe energy crisis on natural gas prices still hasn’t eased out, with the winter season underway. Weak storage levels of natural gas since last winter, coupled with a tight Russian supply, rendered the situation worrisome, months before the usual winter season. Meanwhile, the scene in Asia isn’t too different, especially with the state of the current power demand, in addition to soaring coal prices. Accordingly, both regions are now battling out any available Liquefied Natural Gas (LNG) supplies, leading spot prices per MMBTu to cross over the USD25.0 mark in both continents.
Right now, the market is carefully awaiting the weather forecast for November and December, as it will help guide expectations regarding the current supply shock. Despite the current rally in oil prices, with Brent trading very near the USD80/bbl level, many believe that Europe is on the verge of a gas-to-oil switch. Such strategy has already been followed by a number of regions in south Asia, amid surging spot LNG prices. We believe the gas-to-oil switch will reinforce demand for gasoil and High Sulphur Fuel Oil (HSFO), which should bode well for refineries’ margins and activities. Furthermore, higher coal and natural gas prices will help sustain the current rally in global nitrogen fertilizers’ prices as we mentioned here before in our Trading Playbook dated 29 September 2021.
POSTIVE
ABUK, MFPC, AMOC: Higher global coal and natural gas prices should help sustain the strength of global urea prices. Meanwhile, possible gas-to-oil switch in Europe and Asia should stimulate demand for fuel oils, particularly HSFO and gasoil.
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