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Wednesday, 29 April 20
OIL CLOSES IN ON PEAK OVERSUPPLY - WOOD MACKENZIE
Are we now deep in the abyss? Up to our necks in it, if the oil price is any guide. Brent has now tested sub-US$20/bbl in this downturn and WTI sub-zero, albeit briefly and in somewhat freakish circumstances. Where are the signs of stress across the oil value chain? And what are the prospects of finding an exit route to recovery? I talked it through with Ann-Louise Hittle of our Macro Oils team.
First, oil demand, which we think may be close to bottoming out. Decline has been sharp and deep as Covid-19 takes its toll on global economic activity. Much of the world is currently in lockdown, with more than 65% of the world’s population under travel restrictions. Global air travel and car use have nosedived in many countries. The big hit has been on jet fuel demand (down 50% year-on-year) and gasoline (down 25%). Diesel and fuel oil – used to transport goods by truck, ship and rail – have held relatively steady.
The net effect will be April’s demand falling by an average of 15 million to 18 million b/d year on year, based on the early April forecast from our Macro Oils Service. It’s a big number but may be bigger still on certain days or weeks in April and May. Some estimates have suggested declines of 20 million b/d or more.
A key question is when the global economic recovery that’s needed to kick start oil demand growth again will begin. Right now, we appear to be in limbo. India, France and the UK, among other big economies, have extended lockdowns into May. Italy, Spain, Austria and others have started to ease restrictions while several US states are considering re-opening in May. There are early signs of US gasoline demand stabilising.
China though is the model to watch as it emerges from lockdown. It has already started ratcheting up crude purchases in April to supply a reviving economy.
Second, inventory is building at superfast rates globally. Cushing, Oklahoma, is a microcosm of the wider picture. Oil prices in Texas have incentivised producers to send crude to the Cushing hub; weak demand from refineries in the Mid-West and Gulf Coast have kept it there. Storage tanks are filling up rapidly – the three largest weekly builds on record were in consecutive weeks from late March, based on Genscape’s proprietary twice-weekly tank monitoring.
Cushing’s tightening storage capacity played a central role in WTI’s ignominious dive into negative prices on 20 April, ahead of the May contract expiry. Traders and financial players were effectively ambushed – having to pay counterparties up to US$37/bbl to roll out of their expiring May contracts and into June.
Storage globally will stay tight so long as oversupply persists. Genscape estimates Cushing‘s spare capacity of up to 15 million b/d will be full within weeks, and other landlocked hubs – the Caspian for one – are in a similar position. But in reality, producers everywhere are worried their crude won’t be able to find a home.
Third, the world is still awash with supply, which unlike demand is still close to pre-crisis levels. Low prices have killed off new investment but have not yet had much impact on production. So far, we estimate barely one million b/d of onstream non-OPEC production has been shut in.
These are sizeable volumes but, given the scale of the market oversupply, insignificant. We estimate over 15 million b/d of production generates negative operating cash flow, now that prices have lurched lower. As storage fills up, more wells and fields will be shut-in during the coming weeks. Curtailed volumes will quickly mount up.
What must happen for the oil market to start rebalancing and prices to recover? May is important for supply, with OPEC+ cuts taking effect and removing up to 7 million b/d from the market by the end of the month. We expect a slow return to “normal” life in H2 2020 to help demand recover, though most likely staying below pre-crisis levels.
A strong bounce in demand as the world emerges from recession will be needed to soak up the overhang of inventory, which threatens to reach record levels by summer. Nothing, however, can be taken for granted while coronavirus still poses a threat to economic – and social – activity.
Source: Wood Mackenzie
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Tuesday, 14 January 20
SHIPPING MARKET ANALYSIS - ALLIED SHIPBROKING
Uncertainty in the global geopolitical sphere seems to have not come to an end along with 2019, as 2020 commenced with renewed tensions between the ...
Tuesday, 14 January 20
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A historic drop in coal-fired electricity generation will not sway global coal demand from its upward trajectory through to 2024, though growth wil ...
Saturday, 11 January 20
ARE YOU 95% CONFIDENT THAT YOUR VERY LOW SULPHUR FUEL IS ON SPEC AND MARPOL COMPLIANT? - GARD
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Bunker fuel is a commodity and, like all commodities, is produced and sold according to specifications. Bunkers are usual ...
Saturday, 11 January 20
NEW PRICING COULD SPELL TROUBLE FOR CHINA'S COAL SECTOR - CHINA DIALOGUE
Benchmark coal tariffs have been the foundation of China’s electricity pricing since 2004 but this mechanism was replaced on January 1 with a ...
Saturday, 11 January 20
BALTIC BRIEFING TANKER REPORT - WEEK 2
VLCC
Escalating tensions between the USA and Iran, in addition to a continuing strong market, made for an interesting week, with rates firming ...
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- SN Aboitiz Power Inc, Philippines
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- India Bulls Power Limited - India
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- Economic Council, Georgia
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- The Treasury - Australian Government
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- White Energy Company Limited
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- Marubeni Corporation - India
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- Bulk Trading Sa - Switzerland
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- Samtan Co., Ltd - South Korea
- Coalindo Energy - Indonesia
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- Petron Corporation, Philippines
- Thai Mozambique Logistica
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- Ministry of Transport, Egypt
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- Mintek Dendrill Indonesia
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- Grasim Industreis Ltd - India
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- Iligan Light & Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
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- SMC Global Power, Philippines
- Rashtriya Ispat Nigam Limited - India
- IHS Mccloskey Coal Group - USA
- Global Coal Blending Company Limited - Australia
- Metalloyd Limited - United Kingdom
- Wood Mackenzie - Singapore
- Bangladesh Power Developement Board
- Pipit Mutiara Jaya. PT, Indonesia
- Chamber of Mines of South Africa
- Indonesian Coal Mining Association
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- Intertek Mineral Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Cigading International Bulk Terminal - Indonesia
- Parry Sugars Refinery, India
- CIMB Investment Bank - Malaysia
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- Rio Tinto Coal - Australia
- Miang Besar Coal Terminal - Indonesia
- Cement Manufacturers Association - India
- Antam Resourcindo - Indonesia
- Power Finance Corporation Ltd., India
- Formosa Plastics Group - Taiwan
- Sojitz Corporation - Japan
- Ambuja Cements Ltd - India
- Planning Commission, India
- Renaissance Capital - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Port Waratah Coal Services - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Pendopo Energi Batubara - Indonesia
- Eastern Coal Council - USA
- Medco Energi Mining Internasional
- Africa Commodities Group - South Africa
- London Commodity Brokers - England
- Interocean Group of Companies - India
- PTC India Limited - India
- Merrill Lynch Commodities Europe
- Wilmar Investment Holdings
- Bukit Baiduri Energy - Indonesia
- Energy Link Ltd, New Zealand
- Deloitte Consulting - India
- Uttam Galva Steels Limited - India
- Tata Chemicals Ltd - India
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- International Coal Ventures Pvt Ltd - India
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- CNBM International Corporation - China
- Petrochimia International Co. Ltd.- Taiwan
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- VISA Power Limited - India
- Directorate Of Revenue Intelligence - India
- Sree Jayajothi Cements Limited - India
- Alfred C Toepfer International GmbH - Germany
- Romanian Commodities Exchange
- Posco Energy - South Korea
- Directorate General of MIneral and Coal - Indonesia
- Electricity Authority, New Zealand
- Malabar Cements Ltd - India
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- Vijayanagar Sugar Pvt Ltd - India
- Xindia Steels Limited - India
- Minerals Council of Australia
- Siam City Cement PLC, Thailand
- Maheswari Brothers Coal Limited - India
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- Australian Commodity Traders Exchange
- Jaiprakash Power Ventures ltd
- Straits Asia Resources Limited - Singapore
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