We all read news about rig counts, imports, exports and of course the EIA inventory reports. However, these figures, in isolation, don’t tell much. In order truly observe the market dynamics we have to dive deep in the minutiae, navigate through a mesh of charts, tread on bumpy graphs and be able to anticipate what’s coming ahead – Mark Rossano of Primary Vision Network in our latest installment of EIA Report does exactly that!
We had a good withdraw of 7.3 million barrels last week. PADD 3 level looks good, production have started to come down to 10 mbpd but by the end of the month it might recover up to 11.2 mbpd as some new completion work coming to market. Let’s look at PADD 3 which have experienced most draws. The drop in inventory levels should not be taken as a demand recovery sign. This time of the year we typically experience such draws. What should concern us is the inventory levels as we go forward. Look at the image below. Albeit below from 2016 highs, we are still far away from that average. Should we expect to reach that level anytime soon? Given the uncertainty vis a viz global economic recovery, fears of a second wave of COVID-19 and growing tensions between U.S. and China (in turn affecting global economy), such an expectation would be unrealistic.
Due to the discounts in prices from Urals, Angola, Nigeria and the anticipated cut in OSP by Saudi Arabia. The physical markets aren’t very promising and we expect headwinds ahead! It is instructive to note here that the very effect of another slash in OSP by Saudi Arabia can be the ring bell to wake market from its stupor and cause a correction. If people still respect market fundamentals, we may finally see a shift in sentiments that will adjust the prices to a level more in harmony with the physical/real market.
PADD 2 gets our attention as imports were mainly driven by that region. It is going to experience a strong import level, relatively.
Among other interesting and important indicators that Mark shed light was Implied Demand. The role of demand cannot be understated. No matter what the overall mix of indicators is, if demand isn’t there, we cannot expect a stable market. Look at the chart below and the picture for demand seems bleak.
Highly relatable to this is the Gulf Coast floating storage. See that sharp spike – that was when ships were put on hold due to storms. We might see an increase in imports as these ships will move from floating storage to port will start to effect the numbers.
Refinery Utilization Rates will average about 75 percent. Refiners will “normalize” and “rationalize” as Mark said as they take a stock of their financial and current supply-demand scenario.
From 7:10 till 16 Mark delves into the refined products and gives us some insights behind those charts and graphs- worth lending an ear to!
We’ll have a closer look at Google Mobility Data. [I will put the graph below once I have it]. Mobility data hints towards a very significant aspect of global oil markets: transport. For instance in the Eastern Hemisphere, in countries like Japan, Saudi Arabia, Pakistan , Turkey, Singapore, the figures for Retail and Recreation and Public Transport remain relatively down. The latter remains at – 30 percent in Malaysia, – 23 percent in Japan and – 45 percent in Singapore. Workplace movement remains at – 72 percent in Singapore, – 71 percent in Turkey and -54 percent in Pakistan. This should give you an idea that those predicting such strong comeback in demand as to render a supply shock possible are delusional.
Going forward, we should keep an eye on the demand figures and overall global economic recovery. We will be discussing this in detail in our next show, Economy, tomorrow. Stay tuned! Remember, the difference is in the details!