Oil Narrative
Market Overview
The markets have gotten so used to the ho-hum of ‘deal almost done’ and ‘oil will flood the market’ to the point that every war escalation news does not really move flat price and timespreads anymore.
The supply picture remains unchanged with 10-11 mbd oil loss, but growing reports of more crude being shipped out via Fujairah are emerging. Meanwhile, oil demand is seeing pockets of weakness, particularly in China and India.
Traders are now taking a more risk-off approach.
China’s May crude imports reduced to 7.8 mbd which is a steep 29% drop year-on-year from close to 11 mbd. However do note last year’s figures would include SPR build.
The reduction in crude demand is a function of SPR draw, strong run cuts, yield shifts away from petchem feeds towards transport fuels, domestic demand loss, max coal-to-liquids and methanol production.
They are likely able to hold off from increasing spot buying for longer than the market expects, because even with Iranian and Russian crudes being offered at discounts, they are not buying.
Second batch of product export quotas were released but does not really change the picture in terms of actual muted exports seen so far till June.
Total US commercial crude and product stocks are approaching the historical minimum levels, particularly on mogas and diesel.
Cushing stocks are close to the 20 mb "operational floor".
It does not mean that US will run out of oil entirely, but it should send an even stronger signal for a price movement to keep barrels domestically.
In such a scenario, an outright product export ban or control would not be necessary as pricing would do its work.
