Oil Narratives
Oil Narratives: Flat Price
Flat price has been driven primarily by the oil glut narrative. This has become particularly worrying a record volume of oil on water and Brent spreads flirting with contango.
US blockades on Venezuelan oil in December kept oil prices from free-falling.
However, the surprise capture of Maduro and announcement of US taking control of Venezuela has confused the market somewhat on direction.
We believe there is very little impact in the short term as the key buyers of the Venz barrels have plenty of Iranian and Russian feedstock alternatives.
Only 70% of China’s crude import quotas was released, unlike previous years.
The first batch of China’s naphtha import quotas was also announced at 11.7 mta, which is similar to the 2025 quota.
This signals the government may exert greater control on independent refineries’ crude buying, limiting ability to frontload crude quota for the year. Dubai benchmark is thus expected to be weak.
Main attention of the market is on how the Russian, Venz and Iranian sanctioned barrels are being repositioned. Venz barrels redirected to USGC will see displacement of Canadian barrels into Asia via TMX line
India is already returning to buy Russian crude from unsanctioned entities. China teapots can buy alternative Russian and Iranian cargoes if there is shortfall of Venz cargoes.
So as long as there are enough sanctioned barrels to be placed amongst the typical buyers, then the legit markets will not feel any pressure compared to back in October
