Full Q1 17 tanker tracking data show OPEC exports have fallen by 1.5 mb/d relative to October 2016. Moreover, the first indications that the rebalancing has begun are also now available. Q1 17 crude stocks have built by less than 0.3 mb/d, compared to 1.1 mb/d in Q1 16, even though refinery works were 1.5 mb/d higher y/y. In fact, it is heavier-than-expected Russian refinery maintenance that has led to a surge in Urals April loadings, despite Druzhba volumes falling m/m. We expect Russian crude exports to drop in May and June, supporting Urals values.
The much smaller Q1 17 stockbuild may seem at odds with record OECD crude inventory builds, but comes as over 40 mb of floating storage (including Iranian condensate) has been unwound over the last two months, supplemented by 15-25 mb of draws from onshore storage in the Caribbean and Saldanha Bay. Indeed, record Brazilian exports are also linked to Petrobras unwinding some of its Caribbean storage, which has drawn down rapidly over the past weeks.
In the meantime, product stockdraws have accelerated. Over the past six weeks, clean products stocks in the US have fallen by 40 mb compared to crude builds of 16 mb. European visible product draws have been less convincing, but tertiary stocks are being run down.
So, as refineries return amidst still decent margins, the OPEC cuts will bite from end-May onwards. In the interim, however, with a surge of US crude exports heading to Europe, the return of Sharara, and Nigeria’s Forcados stream rumoured to be back by end-April, Brent prices will be capped. Huge Asian refinery works and a hefty volume of crude travelling East from Q1 17 amidst weak Chinese buying will also lower Asia's appetite for crude, weighing on both Dubai and Brent.
|Fig 1: Global crude stockchange, mb/d||Fig 2: Global refinery works, y/y change, mb/d|
|Source: IEA, Government Agencies, EA||Source: Company reports, Energy Aspects|