July 2021 Global Commodity Snapshot

  • OPEC+ Reached A Deal after two weeks of delay as UAE delegates initially refused to go along with plans for monthly increases without an additional allocation for themselves. In the short term, production will increase by 400,000 barrels per day, reaching 2 million barrels per day (mbpd) at the end of 2021.  Then in May 2022, the baseline for cuts will resetChinese Imports of Iranian Crude and Other Products higher, allowing for the UAE to produce about 500,000 bpd more.  With the global economy reopening halted on COVID Delta fears, prices stalled.  On the bullish side, Israel, the UK and the US blamed Iran for a series of drone attacks and a hijack of ships including oil tankers in the Gulf region.  Is this the end of the Iran nuclear deal, at least until next year?  Finally, Chinese imports of (illegal) Iranian crude and products is believed to have resumed (see JP Morgan graph right in thousands of barrels per day) as China’s economy and exports expanded in 2021.  With the Delta variant, we shall see if there will be a drop but given how short-lived it was in the UK and India, this trend should continue.


  • US Oil Production moved down slightly last month to 11.2 mbpd while operating rigs jumped further to 385 as of July 30th from 376 as of July 2nd. As reference, this is about half the rigs operating before the pandemic but efficiency is much higher nowadays.  The challenge is that US oil reserves are at 439 million barrels (mb) (down from 445 mb a month ago and 503 mb in mid-March) to the lowest level of the year so far.  Moves by the Biden administration to block pipeline construction and new drilling continued so the world needs OPEC+ expansion to avoid higher energy prices and the risk of an economic slowdown from that vector.  US shale plays slowly recovered production with the Permian for example at 4.5 mbpd and expected to not reach its post-pandemic level of 4.9 mbpd until 2022.  With oil prices around $70, those wells are well over their highest break-even cost of $35 per barrel.  Higher gasoline prices ($3.16 all grades versus $3.12 a month ago) are still rippling through the economy but COVID-related re-openings/closures will limit that.  US exports of liquefied natural gas (LNG) continued to grow in the first six months of 2021, averaging 9.5 billion cubic feet per day (bcfd).  This average marked an increase of 41% from 2.8 bcfd compared with the same period in 2020.  Energy producer Brazil was a notable new importer as it needed to make up for lower hydropower output during its drought.


  • China’s Crude Oil Imports in the first half of 2021 fell -3% from a year earlier to 9.8 mbpd, the first contraction for the first six months of a year since 2013, as an import quotaNon-OECD Asia Has Little Wind and Solar Potential shortage, refinery maintenance and rising global prices curbed buying. On the other hand, China’s coal imports in June rose +35% to 28.4 million tonnes from a month earlier (+12.3% year-on-year) to their highest level in 2021, driven by robust demand from power generation and industrial activity.  Looking at the map (right), China has little wind and solar potential so coal and other energy sources has to be its core.  Also remember that China is not currently limited by the recent global climate agreements due to its “emerging economy” status and is building more coal power plants this year (though as a percentage of its energy needs coal is declining).


China’s Soybean Imports in June rose +11.6% from May continuing the trend of resurgent demand in the world’s top buyer as it strives to meet meal demand for its burgeoning hog herds.  China took in 10.72 million tonnes of soybeans in June, up from 9.61 million tonnes in May, and the third-highest monthly amount on record.  However, new crop US soybean export commitments sit at 390 million bushels, down from 660 million a year ago when China commenced a massive buy program.  China could be waiting for the South American export situation to improve.  However, unfavorable weather caused second corn yields in the center-south of Brazil to plunge to their lowest level in 10 years.  After their drought, frost spoiled almost one-third of the crop.  Brazilian farmers are now expected to collect 51.6 million tonnes of second corn, almost 19 million tonnes below the 70.5 million from last season, AgRural consultancy said.  Meanwhile, the trucker strike at Argentina’s Bahia Blanca terminal meant that the the locally-stored corn and soybean inventory could not be replenished, which could limit near-term corn exports.  One bright spot on food prices was that the planet’s biggest importer of pork could slash overseas purchases by more than 50% in the July-December period from the first half of the year because local supplies are now cheaper than overseas shipments.  China’s grain imports are feeding those hog hotels!


David Burkart, CFA

Coloma Capital Futures®, LLC
Special contributor to aiSource