Living in the present

Published at 11:51 17 Jul 2017 by

Notwithstanding a bit of softness at the front of the Brent curve, physical crude differentials are improving. The return of Indian crude buying after a prolonged refinery maintenance period is supporting Nigerian differentials, while Chinese and North Asian refiners are switching to lighter grades—much like European and US refiners—due to the strength in heavy crudes. This has meant sour crudes have come off their highs, but has led to concerns about demand in the east.

Even though China has likely overbought 0.30-0.35 mb/d of crude over H1 17 and murmurings of run cuts amongst both majors and teapots means crude buying is coming in stops and starts, we calculate that Asia still needs 21 mb/d of crude across H2 17. While this is higher y/y by just 0.25 mb/d and lower than H1 17’s short of 21.34 mb/d, it is still sizeable and floating storage is drawing.

Another factor that has reduced Asia’s crude needs is far more planned and unplanned refinery works, so much so that since April, despite dismal LatAm runs, West of Suez refinery runs have risen y/y by over 1 mb/d, while East of Suez run rates moderated. The growth in European runs have exceeded Asian runs for the first time since 2003. Asia has resorted to importing products, and the west has stepped up to fill the gap, resulting in stronger crude draws in the west.

Unsurprisingly, the US is now the strongest crude market globally, although the obsession with the east means traders keep pushing barrels there even when demand is in the west. Interestingly, despite global refinery runs tracking higher y/y by over 0.7 mb/d in H1 17, products stocks are falling fast, indicating stellar demand. So currently, product markets are rebalancing quicker than crude, but as long as the strength in demand persists, crude will follow suit.

Fig 1: Crude inventory vs 5-year average, mb Fig 2: World runs, y/y change, mb/d
Crude invenotry vs 5yr avg World runs
Source: IEA, Energy Aspects Source: Government sources, Energy Aspects

Log in to download

Other Perspectives publications

Sour(ing) relations

Published 2 days ago

2018-03-19 Oil - Perspectives - Sour(ing) relations cover

The market currently lacks conviction. Many believe that price action in 2018 will be a repeat of..

Read more


Published 1 week ago

2018-03-12 Oil - Perspectives - Constrained cover

Physical crudes remain weak seasonally. Just as it seemed Med grades may have found a bottom, Ura..

Read more

Fear of shadows

Published 2 weeks ago

2018-03-05 Oil - Perspectives - Fear of shadows cover

The macro worries that had started to haunt the oil market in early February have reared their ug..

Read more

IP week(ly): Bull and bear

Published 3 weeks ago

2018-02-26 Oil - Perspectives - IP week(ly): Bull and bear cover

The annual oil industry gathering in London last week was hectic as usual, but, surprisingly, the..

Read more

Flu season

Published 1 month ago

2018-02-19 Oil - Perspectives - Flu season cover

It is that awkward time of the year when refineries have stopped buying crude as they prepare to..

Read more