The Commodities Feed: US shale growth set to slow

US drilling productivity report: The EIA released its monthly drilling productivity report yesterday, and they estimate that US shale production over February will grow by 62Mbbls/d month-on-month to total 8.18MMbbls/d. Which if turns out to be the case, would be the slowest MoM growth seen since May 2018. The increased price volatility over much of 4Q18 will have done little to support increased drilling activity. Meanwhile, the number of drilled but uncompleted wells (DUCs) increased by 218 over December to total a record 8,594.

US crude oil inventories: The API is scheduled to release its weekly oil inventory report later today, which will be followed by the EIA’s weekly report tomorrow. Market expectations heading into these releases are that US crude oil inventories decreased by around 500Mbbls over the week, according to a Bloomberg survey. Fairly large builds are expected in products again, with gasoline inventories expected to have increased by around 3MMbbls over the last week, whilst distillate fuel oil inventories are expected to increase by around 1.1MMbbls. Numbers similar to these could be seen as fairly bearish for the market, given the marginal draw in crude oil, but yet again large product builds- particularly in gasoline.

Copper smelter restarts delayed: The restart of Codelco’s smelters at the Chuquicamata and Salvador mines will be delayed until March- a month later than originally expected. Codelco stopped operations at the smelters in late 2018 in order to carry out upgrades so that the smelters comply with new environmental regulations. Codelco has said that it has increased concentrate shipments during the smelter outages. However, the extended outage could see a tightening in the refined market. Already LME inventories are near decade lows, although when looking at the LME copper cash/3month spread, the deep contango suggests the market is not too concerned about tightness in the prompt market. Earlier this month, Codelco said that smelter closures could result in a production loss of 218kt; now with delays, this loss looks as though it will be even larger.

Zinc cancelled warrants: Cancelled warrants of LME zinc stocks increased by more than 100% yesterday, rising from 18,025 tonnes to 39,100 tonnes with now nearly all inventories sitting in European warehouses earmarked for withdrawal. LME zinc on warrant stocks have fallen to more than a year low of 79,725 tonnes, This has helped to see somewhat of a recovery in the LME zinc cash/3 month spread, which has traded back up to a US$12.50/t backwardation, from just US$1/t mid-month.

US grain export inspections: Latest data from the USDA shows that 1.11mt of soybeans were inspected for export over the last week, this compares to 1.09mt in the previous week, and 1.42mt in the same week last year. Cumulative inspections for the current marketing year stand at 19.51mt, down 40% year-on-year. However we are seeing increased volumes coming through for China, with a total of 416kt inspected over the week- making up 37% of total US soybean export inspections for the week. As trade talks between China and the US appear to continue to move in the right direction, we could see increased volumes of US grains making their way to China.