The two-month cycle

Published at 12:28 5 Nov 2018 by . Last edited 15:12 5 Nov 2018.

Users licensed for the data service can access our global balances.

Even before a larger number of Iran sanctions waivers was announced on Friday, market sentiment had soured on crude. Asian differentials have come off their record highs and data show US output surged in August, although hefty US exports over the summer meant the physical market had already seen these barrels. Still, against a backdrop of economic uncertainty because of US-China trade tensions (although a deal is now taking shape), longs have given up.

However, with US demand surprising to the upside by as much as output, changes to average H2 18 balances were minimal. Yet quarterly balances mask m/m swings. With new refinery starts delayed, others going on a buyers’ strike having overbought for November as the US had initially indicated zero waivers before softening its stance, and UAE exports (but not Saudi and Iran) set to pick up, the m/m supply–demand swing between November and December could be 1.5 mb/d.

There is a wider problem, however. While we believe sour crude fundamentals will tighten as refineries return from works and drive the global deficit we forecast in Q4 18, the same cannot be said about light sweets due to the growing lightness of US exports. And during refinery works, it takes one/two months to absorb the light overhang. Higher-than-expected global refinery works in October allowed the ugly head of light crude overhang to rear itself unexpectedly.

Whenever there is a global molecule shortage, sours will ultimately pull sweets up. But Brent spreads will struggle to stay strong for more than two months at a time as US exports will quickly come in. Traditional norms of sours trading below sweets need to be redefined and products are telling us exactly that with RBOB cracks trading negative and Asian fuel oil cracks positive.

December RBOB vs HO, cents per gallon Global CDU maintenance, mb/d
Source: Bloomberg, Energy Aspects Source: Energy Aspects

Log in to download

Other Perspectives publications

Scylla and Charybdis

Published 6 days ago

2019-03-18 Oil - Perspectives - Scylla and Charybdis cover
The situation in Venezuela has progressively evolved into a stalemate, with no quick resolution i..

Read more

Cut up

Published 1 week ago

2019-03-11 Oil - Perspectives - Cut up cover
Users licensed for the data service can access our global balances.The pullback in..

Read more

IP week(ly): Paradoxical inversion

Published 2 weeks ago

2019-03-04 Oil - Perspectives - IP week(ly): Paradoxical inversion cover
Users licensed for the data service can access our global balances.IP week was dom..

Read more

Not the end of the world

Published 3 weeks ago

2019-02-25 Oil - Perspectives - Not the end of the world cover
Worries about the global economy continue to cap crude prices even as the physical market is roar..

Read more

Spread and regret

Published 1 month ago

2019-02-18 Oil - Perspectives - Spread and regret cover
Users licensed for the data service can access our global balances.Even though we..

Read more