Oil Market Report - 19th February 2019

table.JPG

The week of only constructive news: Flat price hit 3 month highs this week as supply led pressure from Venezuela and voluntary cuts from Saudi contributed to the upward pressure. Brent prices finally broke the $60-$65 range and is now trading above its 100-day moving average. Brent jumped over $4 this week while WTI gained almost $3. Brent structure Dec/Dec gained 70c and we are now seeing healthy backwardation across the curve. Even macro markets were supportive this week, as equity markets were up and metal prices showed healthy gains as well.

Source: ICE

Source: ICE

The financial community is following this trend as speculative length in Brent has now increased 9 out of the last 10 weeks. The net spec length in Brent is now following a very similar trajectory like it did in 2016 when prices hit rock bottom. Currently there is no obvious source of bearish news for the time being as US production has been flatlined for the last 5 DOE weekly stats.

Many analysts are now already talking about prices continuing its upward march to $70 and beyond. However, this rally looks fragile yet again like it did in 2018 as this is a supply cut led rally. On the demand side, refinery margins are still very poor. Diesel and fuel oil cracks might be strong, but they are not strong enough to offset the light end weakness.

The physical market is already trading the months of peak refinery maintenance, however there is a risk that refineries might delay their restart from maintenance if refinery margins remain this poor.

Despite weak refinery margins, we had strong data from China and India this week. Chinese crude imports came out very strong for the third month in a row. China has now imported more than 10 million barrels per day (MMBD) for 3 months in a row. With 2 new mega refineries started in late Q4, imports should remain above 10MMBD. It was only a couple of years ago when US imported more than China, but China is now importing 2-3MMBD more than the US.

India reported some strong January numbers (Source: PPAC). The overall demand was as 4615KBD which is up by 6.5% y-o-y. However, if you take the 2018 average demand number, then the January print was higher by a less impressive 3%. India has general elections in May this year and we might see demand remain elevated until the first half of this year at least.

Source: GAC

Source: GAC

Indian Product demand.JPG

India’s IOC also reported that they plan to take 60KBD of US crude until March 2020 as it tries to diversify its crude slate. IOC has a nameplate capacity of around 1400KBD of which now at least 4% will come from the US.

In other fundamental data releases, JODI updated their monthly data and their data is now complete for 2018. Saudi crude stocks continue to decline at a rapid pace. Saudi crude stocks have dropped around 124 million barrels from its peak seen 26 months ago. That’s an average draw down of 160KBD, possibly to keep their exports elevated and not lose market share to other countries.

Saudi Crude Stats (JODI)

Saudi Crude Stats (JODI)

On the Saudi demand side, product demand looks bearish. With many expats leaving the country in 2018, diesel demand took a hit dropping 12% in 2018.

Saudi Product Stats (JODI)

Saudi Product Stats (JODI)

Norway Oil Production (Source: NPD)

Norway Oil Production (Source: NPD)

Norway’s NPD released their 2019 oil production estimate and it should give some fuel to the oil bulls as the field declines are sharper than previous years. Production is estimated to make new lows until Johan Sverdup field comes online later this year.

fwd curve.JPG

DISCLAIMER: All prices data are taken from exchanges and fundamental data from respective government websites.

The materials provided on this Web site are for informational and educational purposes only and are not intended to provide tax, legal, or investment advice.

Nothing contained on the Web site shall be considered a recommendation, solicitation, or offer to buy or sell a security to any person in any jurisdiction.


OilyticsComment