Macro Analysis / Global

The Commodities Feed: Rangebound price action

Energy

June has been a fairly quiet month for the oil market, with the front month ICE Brent contract trading in less than a US$7/bbl range over the month, and prices have largely gravitated around the US$40/bbl level.

The tightening of restrictions over the weekend in several US states due to a surge in Covid-19 cases did see oil prices wobble initially. However, the sell-off was short-lived. We still believe it is difficult to justify significant upside in prices in the near term due to the high levels of inventory, continued weakness in refinery margins, and the fear over a severe second wave of Covid-19. Therefore it looks likely that the market will continue to consolidate around current levels. The medium and long term outlook for prices remains more constructive, with deficits expected to persist through 2021, assuming that OPEC+ stick to their production cut deal. In fact, the Premier of Alberta in Canada see shortages in the oil market in 12-18 months with current prices just not providing enough of an incentive to make necessary investments.

It looks as though Libya is moving closer to restarting oil production, with the National Oil Corporation hopeful that fields can re-open, after international talks to bring blockades from eastern backed forces in the country to an end. Libyan oil output has been offline for much of the year due to blockades, although there have been several attempts to bring output back online in recent weeks. If we do finally see a resumption in Libyan output, this would make the job of OPEC+ a little bit more difficult, as Libya pumped at around 1MMbbls/d prior to the disruptions.

Finally, later today the API will release weekly inventory numbers, and expectations are that oil inventories in the US declined by 750Mbbls over the last week. On the product side, gasoline inventories are expected to decline by around 1.7MMbbls, whilst distillate fuel oil inventories are expected to see a slight increase. Any demand hit on the gasoline side from the tightening of Covid-19 restrictions in Texas, California and Florida will likely be reflected in next week’s release.

Visit ING Think
Most Viewed See all latest
Disclosures

This publication is being distributed by Tellimer solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not cons...

Full Tellimer disclaimers
Macro Analysis / Global

The Commodities Feed: Oil ignores Covid-19 surge

ING Think
6 July 2020

Energy

Oil continues to trade in a rangebound manner, with ICE Brent just below US$43/bbl in early morning trading in Asia. The market appears to be shrugging off the surge in Covid-19 cases in the US, but we will get a better idea of what impact tighter restrictions in several states have had on gasoline demand with the EIA report this week. For now, data for several cities in affected states does not show a significant reduction in road traffic week-on-week.

Turning to supply, and all attention will be on OPEC+ once again in the coming weeks, with the group’s Joint Ministerial Monitoring Committee (JMMC) set to meet in mid-July. The key interest here will be what the JMMC recommends to the broader OPEC+ group. Currently, output cuts are set to be eased from 1 August, which will see the level of cuts reduced from 9.6MMbbls/d in July to 7.7MMbbls/d. Last week, the Russian energy minister had said a decision has not been made yet. However, it appears (unsurprisingly), that Russia is keen to stick to the original deal, and start reducing the scale of cuts from next month.

Finally, the latest exchange data from ICE shows that speculators increased their net long in ICE Brent by 12,472 lots over the last reporting week, to leave them with a net long of 214,141 lots, which is the largest position speculators have held in Brent since early March. The bulk of buying over the week was as a result of short-covering, rather than fresh longs entering the market. Given the level of uncertainty in the market, specifically around demand, it is not too surprising that fresh longs are reluctant to enter the market. Positioning data for WTI will be released only later today, with the delay due to a US holiday on Friday.


 
Read more
Macro Analysis / Global

The Commodities Feed: US imports of Saudi oil fall

ING Think
2 July 2020

Energy

EIA inventory numbers were largely supportive for the market, with US crude oil inventories declining by 7.2MMbbls last week, much more than the 500Mbbls drawdown the market was expecting, and closer to the API numbers from the previous day. The big driver in the decline, was a 571Mbbls/d fall in oil imports over the week, with the larger volumes seen in recent weeks from Saudi Arabia now starting to come down to more normal levels. Imports of Saudi oil peaked at the end of May at just shy of 1.6MMbbls/d (a result of the Saudi price war), and over the last week imports averaged  826Mbbls/d. In the weeks ahead, there is likely further downside to these volumes, with the armada of Saudi vessels slowly clearing.

With refinery utilisation continuing to edge higher, this should also help eat into US crude oil inventories. Refiners in the US increased their run rates by 0.9 percentage points over the week, leaving runs at 75.5% capacity. Clearly refiners still have some way to go before reaching the 90% plus we were seeing prior to the Covid-19 outbreak.

Turning to refined products, and the EIA reported that distillate fuel oil stocks declined by 593Mbbls over the week, whilst gasoline inventories surprisingly increased by 1.2MMbbls. The surprise build was driven by stronger imports, with gasoline volumes up 307Mbbls/d over the week, taking total gasoline imports to a little over 1MMbbls/d - the largest weekly number since August. Implied demand was slightly weaker, although it will be interesting to follow these demand numbers in the coming weeks, with a number of states having re-tightened Covid-19 related restrictions.


 
Read more
Macro Analysis / Global

The Commodities Feed: OPEC+ JMMC set to meet

ING Think
13 July 2020

Energy

The market continues to trade in a fairly boring range, with ICE Brent continuing to trade around the US$43/bbl level. On Friday, the IEA released its monthly oil market report, and whilst the agency revised higher its demand estimates for this year, risks to the demand outlook were highlighted with the surge in Covid-19 cases that we have seen, particularly in the US. The IEA expects oil consumption this year to decline by 7.9MMbbls/d, compared to their previous estimate of a fall of 8.1Mbbls/d. This slight revision reflects demand that we have already seen, rather than a change to the outlook over the second half of the year.

There were reports over the weekend that OPEC+ will start to ease their production cuts from the 1 August, which is in line with the current deal. This would see the group reduce the scale of cuts from 9.6MMbbls/d to 7.7MMbbls/d. The market should get confirmation of this over the course of the week, with the OPEC+ Joint Ministerial Monitoring Committee (JMMC) set to meet on Wednesday to discuss the performance of the deal so far, and potentially what further action is needed by the group. If the group decide to ease cuts from the 1 August, this should not lead to a change in views on the market, with most assuming that OPEC+ would start easing cuts by this stage already. However continuing deeper cuts would be more of a surprise.

There is a fair amount of other data set to be released this week. Later today the EIA will be releasing its US drilling productivity report. This will be followed by Chinese trade data on Tuesday, and finally, OPEC will release its monthly market report on the same day as well, which will provide OPEC production numbers for June, along with the group’s outlook for the oil market.


 
Read more
Macro Analysis / Global

The Commodities Feed: Oil under renewed pressure

ING Think
25 June 2020

Energy

Oil markets came under renewed pressure yesterday, with ICE Brent settling more than 5% lower on the day, and edging back closer towards the US$40/bbl level. A surge in Covid-19 cases in the US is certainly not helping sentiment, with worries over what this could mean for demand if this trend continues, while trade developments have not been helpful either. The EIA also released a more bearish than expected inventory report, with US crude oil inventories increasing by 1.44MMbbls over the last week, taking stocks to a record 540.7MMbbls. Production saw an increase of 500Mbbls/d over the week, but that would have largely reflected disrupted production in the US Gulf of Mexico coming back online after tropical storm Cristobal. Meanwhile, refinery activity continues to edge higher, with utilisation rates increasing by 0.8 percentage points to 74.6%.

Product inventories were more bearish, with gasoline stocks falling by 1.67MMbbls over the week, which is quite a bit less than the 3.86MMbbls draw the API reported the previous day. While on the distillate fuel oil side, the EIA reported a surprise build of 249Mbbls. Although if you want to find something positive, then look at the demand numbers, with implied gasoline demand increasing by 738Mbbls/d over the week to 8.6MMbbls/d, which is up about 3.5MMbbls/d from the lows seen in April.  

Finally, the latest Dallas Fed Energy survey confirmed what many in the market were expecting, and that is that US producers will start to bring back shut-in wells at current price levels. 36% of producers surveyed, and who had shut-in production, said they expect to restart this production by the end of June, while 20% expect to restart shut-in production by the end of July. 30% of those interviewed, believed that producers would bring back shut-in wells at a WTI price range of US$36-40/bbl, which is basically where we are trading at the moment, while 27% believed you would need a price within the range of US$41-45/bbl. Bringing back shut-in wells may provide a brief uptick in US production in the near term, but the  lack of drilling activity means that US producers will likely be unable to sustain current production levels.


 
Read more
Macro Analysis / Global

The Commodities Feed: China refining activity picks up

ING Think
16 June 2020

Energy

Oil prices managed to settle higher yesterday, with ICE Brent continuing to gravitate around US$40/bbl. There were reports that both Saudi Arabia and Iraq would cut oil supply to buyers in Asia and Europe in July, given the OPEC+ agreement. For this month, Iraq has said that it will cut oil exports by 15% to average around 2.8MMbbls/d. Iraq is one of the countries under pressure at the moment to improve their compliance with the supply cut deal, given that during May, their compliance was just 42%.

Yesterday the EIA released its Drilling Productivity report, where unsurprisingly they estimate that US shale production will fall over July by 93Mbbls/d to average 7.63MMbbls/d. The number of drilled but uncompleted wells (DUCs) in the US continues to decline, falling by 33 over May to total 7,591. Looking ahead, with oil prices having recovered from their lows, and drilling activity having come to a standstill, we are likely to see DUC inventory declining at a quicker pace, in order for producers to try maintain output.

Finally, data out of China yesterday showed that oil refineries in May increased throughput to the highest levels so far this year, as the country returns to normality after the Covid-19 outbreak earlier in the year. On a daily basis, refineries processed 13.69MMbbls/d of crude oil, up 4.1% MoM. Although cumulatively, processing rates are still down 1% YoY over the first 5 months of the year.


 
Read more

3 articles remaining this month. It's free and easy to sign up.