Not for the fainthearted

Published at 11:52 7 Jan 2019 by . Last edited 13:01 7 Jan 2019.

We are pleased to launch our new Global crude oil balances in addition to the existing Global liquids balances.

This publication provides Energy Aspects’ monthly and quarterly crude oil and global liquids balances (Figures 3-5) with country-level breakdowns for OPEC and non-OPEC countries (Figures 10-12). Summary quarterly tables for global liquids balances from IEA, EIA and OPEC are also provided for comparison (Figures 6-9). Tables detailing OPEC and non-OPEC projects, refinery runs and refinery maintenance for the coming year are also available in this section. Energy Aspects' detailed historical balances, by country and by month, can be downloaded from our data service webpage (data subscription required).

As 2019 begins, there is a gradual fading in the supply uncertainties that had caused the sour turn in sentiment and the fall in prices back in October. OPEC cuts are slowly but surely showing up in the form of lower loading programmes, while low oil prices will keep a lid on US production growth, especially as service companies are unable to cut costs this time around. We have lowered our 2019 US crude production growth forecasts by 0.11 mb/d to 1.2 mb/d.

However, demand is where the risks lie. The large and difficult to quantify downside risks from the US-China trade war uncertainties are starting to hit corporate earnings. China is undoubtedly the biggest concern, especially given the weakness in the latest economic data. The government is taking measures to put a floor under growth, but this will take time.

In the US, worries about the Fed overtightening are unjustified, at least for now. The Fed is hiking to something that looks fundamentally ‘normal’ but markets are trading like its 2008 all over again. For us, it is still too soon to assume the worst-case scenario for the global economy in 2019.

So, how does all of this play out? The current conditions are optimal to support a rally in H2 19 by keeping OPEC and US production in check. Even right now, despite the shallow contango, there hasn’t been a build-up of inventories, and physical grades—in particular sours—are holding up well despite hefty upcoming refinery maintenance. As long as the bottom doesn’t fall out of the economy, the problem for crude will not be one of molecule oversupply but one relating to quality (we think by Q2 19, sour crudes will consistently trade above sweets) and supply-demand of futures contracts (given the damage done by volatility to trading profits last year).

Equity vs bonds performance, y/y, % Physical differentials, $ per barrel
Equity vs bond performance Physical differentials
Source: Bloomberg, Energy Aspects Source: Argus, Energy Aspects

 

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