Amidst all the chaos

Published at 12:15 20 Mar 2017 by . Last edited 18:27 20 Mar 2017.

The fallout from CERAWeek continues even a fortnight later. A series of OPEC PR gaffes that started at the conference went on for longer than OPEC or the market would have liked. Various contradictory statements from oil ministers raised concerns about the chances of the OPEC deal rolling over in May, especially as the lack of visible stockdraws has the market on the edge already.

Iraq’s minister insisted that the current OPEC deal was based on exports (which it is not); Saudi Arabia added to the confusion by introducing the term ‘supplies to the market’, which is new for many participants; and Iran simultaneously claimed to be happy to cap production at 3.8 mb/d if the current deal rolls over (a huge deal, in our view), but also that it will reach 4 mb/d by 20 April.

Some of these statements cannot be taken at face value—such as the Iraqi claims of keeping exports at 3.2 mb/d in H2 17 but raising production by 0.5 mb/d to 5 mb/d. Others, such as the Saudi supply figures, are important to understand. The Kingdom has depleted over 60 mb of stocks since January 2016 and has to rebuild some of that, but this does not imply higher exports.

However, this is not a time to add to market confusion. Already, destocking has hit the physical crude market hard, as offshore stockdraws have led to onshore stockbuilds. The best course of action for OPEC is to say nothing and let markets do the work for the next few months.

The good news for the bulls is that at least the products markets are starting to look healthier as end-user destocking comes to an end and buying is picking back up again. With product stocks starting to deplete heavily, the incentive for refiners to run post maintenance will be high.

Fig 1: Saudi production vs supplies, mb/d Fig 2: Planned refinery maintenance, mb/d
Saudi Production vs Supplies Refinery Maintenance
Source: MEES, JODI, Energy Aspects Source: Energy Aspects

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