Energy complex higher and petcoke in a sharp rally above US$100 – central banks act on rising inflation

The situation around the Strait of Hormuz (SoH) and US military action against Iran is dragging on and still dominates the major moves in the markets. Oil in particular is reacting with ±10 per cent moves on rumours of talks. The potentially higher risk premium levels and increased attacks on Russian export facilities will support high prices. Energy prices are now pushing inflation in both the USA and especially the euro zone higher, jumping to 3.8 per cent in September, while the US inflation reached 3.4 per cent in August. As expected, the European Central Bank and the US Federal Reserve (Fed) increased interest rates by 0.25 percentage points to 2.65 and four per cent. The big political issue is the 3 November US mid-term elections and republicans’ standing is pointing towards the president losing the control of at least one of the houses. The VIX volatility index remained low at 15.10 (no “fear”), below the critical 20 level. 

The US dollar has strengthened lately due to higher long-term bond rates and the hawkish tone of the Fed, with the euro at it its weakest levels for 18 months. The EUR/US$ exchange rate fell three per cent to US$1.127, moving to US$1.11-1.16. Brannvoll ApS forecasts a range of US$1.10-1.20 in 2027, with an average of US$1.15.

Oil
Closely following actions and statements, Brent oil traded between US$85-105, due to the same drivers of the previous quarter. 

The IEA and the USA have released oil to the markets, but refined products are the problem, with diesel and aviation fuel becoming increasingly expensive. With the limited export from Saudi Arabian and Oman refineries, and LNG export under threat, there is a substantial risk premium in oil, TTF gas and petcoke. A return to the negotiations before the US mid-term election could likely send Brent towards US$90, while a prolonged or escalated confrontation would return prices to US$115. The oil markets are still in sharp backwardation with Dec 27 forward rates US$18 below front-month Dec 26. 

Brent oil rose four per cent MoM to US$100 and if spikes occur, a price of US$115 could easily be seen. The TTF gas prices are at EUR76 in the front-month and the Cal27 gas price is up 11 per cent at EUR61.

Brannvoll ApS forecasts a Brent trading range of US$80-120 and average of US$95 for 2027 until we see substantial moves in the SoH situation, which incurs a US$10-15 premium. 

Coal 
Coal continued to follow the oil moves. Demand is surging despite increased production in India, but several markets are seeing less output, especially Indonesia and Russia. However, seaborne trade is expected to increase to new all-time highs in 2027, when IEA predicts consumption of 9bnt. An increase in short-term demand is expected, driven by higher gas and LNG prices.

The Q26/front quarter (FQ) contract rose seven per cent MoM to US$146, in the range of US$120-155. The Cal27 contract rose four per cent to US$130. API4 4Q26/FQ contracts were up again by 18 per cent at US$127, to the top of short-term range of US$115-135. 

Brannvoll ApS forecasts an API2 FQ contract range of US$100-160, averaging at US$130 in 2027 if war continues. 

Petcoke  
The petcoke rally increased its speed with all drivers pointing upwards and buyers started to accept that the higher prices are based on an actual lack of supply. Saudi Arabian and Omani exports are at almost zero while Russian exports are down as well. Because rising coal prices make a switch to coal challenging, the market surpassed the US$100 mark for FOB prices for the first time in two years. Mediterranean and Indian buyers were seen despite higher freight prices adding to the rally.

The discount towards coal has fallen sharply for both FOB and ARA, but petcoke remains the “cheapest fuel”, sitting in the low part of the neutral zone and approaching the expensive zone.

The USGC FOB 6.5 per cent contract skyrocketed 24 per cent MoM to US$107, while the API4 discount collapsed to 33 per cent. The USGC ARA 6.5 per cent contract increased 20 per cent MoM to US$140 and the discount fell to 28 per cent. The USGC FOB 4.5 per cent contract rallied sharply 25 per cent MoM to US$114, with the FOB discount to API4 collapsing 13 per cent down to 28 per cent. The USGC ARA 4.5 per cent contract rose 20 per cent to US$147, seeing the discount down below 20 per cent at 18 per cent. There is potential for upward moves if the supply shortage drags on.

Brannvoll ApS forecast a discount of 25 per cent in 2027, and a range of US$90-150 for the ARA 6.5 per cent contract in 2027, with an average of US$120. However, geopolitics may drive volatility extremely high in the 2027 quarters. 

By Frank O. Brannvoll, Brannvoll ApS, Denmark