Longing for summer

Published at 11:52 15 May 2017 by . Last edited 08:57 16 May 2017.

With the return of disrupted grades in Nigeria and several fields in western Libya, unplanned upstream outages fell to around 1.2 mb/d as of mid-last week, the lowest since early 2011—before the Arab Spring. Naturally, there was ample downward pressure on prices early last week.

The return of Libyan and Nigerian production means most of the bad news is now in the market and, on balance, the risk is now of rising disruptions. But given the current bearish tint to sentiment, further fuelled by Q1 17 US producer earnings calls guiding to higher US tight oil output, the market is concerned about various offsets to the OPEC cuts.

Saudi Arabia and Russia have attempted to pre-empt this by announcing their agreement to roll over the deal by nine months, rather than the six months that most in the market had been assuming. To an extent the market has forced OPEC’s hand—much like with the Fed and quantitative easing—to get prices to react positively, and the market may still need to see deeper cuts from the group later. As long as OPEC manages to reduce exports in line with existing production cuts from here, the scene will be set for the summer rally in prices.

And, we believe that OPEC will reduce exports more than they have done so far (and in line with output) helped by the seasonal upswing in crude burn—even though this will be lower this year due to new gas and fuel oil plants in Saudi Arabia—along with a slowdown in destocking. Indeed, by the start of May, Saudi crude stocks had fallen by 75 mb since November 2015. This is why Aramco has reduced crude exports to Asia by 0.25 mb/d in June, coinciding with Ramadan, as summer burn is rising. We expect Saudi crude burn to peak at 0.59 mb/d this year.

Fig 1: Saudi crude inventories, mb Fig 2: Saudi crude burn, mb/d
Saud crude inventories Saudi Crude Burn
Source: JODI, Energy Aspects Source: JODI, Energy Aspects

Log in to download

Other Perspectives publications

Bonfire of the vanities

Published 2 days ago

2017-07-24 Oil - Perspectives - Bonfire of the vanities cover

The market’s focus is back on OPEC and the JMMC meeting in Russia today. While some may be disapp..

Read more

Living in the present

Published 1 week ago

2017-07-17 Oil - Perspectives - Living in the present cover

Notwithstanding a bit of softness at the front of the Brent curve, physical crude differentials a..

Read more

Demand’s long haul

Published 2 weeks ago

2017-07-10 Oil - Perspectives - Demand’s long haul cover

Even with a 13.5 mb crude and products draw in the US, prices fell sharply. Across the last four..

Read more

Hope sprouts

Published 3 weeks ago

2017-07-03 Oil - Perspectives - Hope sprouts cover

The improvement visible in the physical markets has continued for a few weeks now, providing a fl..

Read more

More than a feeling?

Published 1 month ago

2017-06-26 Oil - Perspectives - More than a feeling? cover

Sentiment in the oil market remains morbid even though the physical market is perhaps showing som..

Read more