Fundamentals is our monthly review of global oil data, this is the August 2017 edition. This month's Fundamentals is presented in a more digestible format, with fewer charts and tables in the 'Country-level details' section. For access to deeper country-level details, we now provide links to the relevant data reviews in each country's section. Feedback is welcome.
Thanks to surging demand, global inventories drew counter-seasonally in Q2 17, by 0.7 mb/d, but it has really been in Q3 17 that the pace of stockdraws has accelerated. Our balances suggest draws of 0.9 mb/d—which high frequency data for Q3 17 so far confirms—including what we believe are overstated crude stockbuilds for China of 0.80 mb/d.
The market is rebalancing quickly and we expect this trend to continue through Q4 17, although the baton of rebalancing currently held by crude will pass to products. Indeed, global liquids inventories usually build in July, but our estimates show a very unseasonal rise—crude and products stocks drew, but NGLs built. In June, global stockdraws totalled 1.2 mb/d, despite a build in Chinese SPR, as demand ran well ahead of supplies. This compares to five-year average draws of 0.6 mb/d during the month.
As the inventory overhang gets run down, the market will be more exposed to outages, both in crude and products. An outage may well be the catalyst for flat price to rise, much like with Libya in 2011. For instance, given products markets are tighter than crude, particularly on a days of forward cover basis, refinery outages are being felt more keenly.
Overall, there is still another 200-250 mb of liquids overhang to work through before stocks reach the five-year average. However, adjusted for recent demand growth, days of forward cover are firmly lower both y/y and relative to end-Q1 17. OECD products’ days of forward cover are roughly one day above the five-year average and crude is two days over. In the non-OECD, floating storage has fallen by at least 30-35 mb over the last month while interest in Saldanha Bay barrels is rising.
So, on a forward-cover basis, we only need to run down around 130 mb of stocks globally to get back to the five-year average, a feat that is entirely possible this year despite upcoming refinery works, as long as demand growth persists around its current levels.