Mysterious apathy

Published at 12:11 8 Apr 2019 by

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With June barrels starting to trade in some parts of the world, the market is about to get a glimpse of what global crude demand looks like in a non-turnaround month. This is particularly true for heavy grades and by extension medium crudes, which are flying off the shelf as they are being bought to replace heavy barrels. Now, due to the dearth of alternatives, refiners are switching to light barrels, pulling them higher, even if that means sacrificing maximum throughput.

The rally in Urals has been highly impressive, especially considering that the April export programme is 6% larger m/m due to the start of peak refinery maintenance in Russia and fuel oil is weakening amid softer demand and an increase in Iranian exports as the US shifted its focus to Venezuela. This is due to increased Indian buying as the power outages in Venezuela have halted exports for days and the risk is crude only loadings fall below 0.4 mb/d in April.

But it is not just OPEC production that is disappointing. Both Mexico and Brazil have surprised significantly to the downside over Q1 19, with non-OPEC output (ex. US) lower y/y by 0.2 mb/d. This is a supply-led crude market, offsetting weak product cracks as demand growth is lacklustre.

Moreover, fears that Chinese buying is about to disappear as they have overbought, implying crude demand will drop in Q2 19 may be somewhat exaggerated. We find that a large part of the stockpiling has gone towards filling new tanks, and Chinese refiners claim that while crude stocks are higher y/y from a very low base, they are not high overall. Nominal stock levels are unhelpful in understanding China’s buying patterns due to the complexity of local infrastructure expansion plans and the growing sophistication of China’s state-directed stock management plans.

Atlantic basin diffs vs Dated Brent, $/bbl China crude stocks, mb and utilisation, %
Atlantic basin diffs vs Dated Brent China crude stock, mb and utilisation
Source: Argus Media Group, Energy Aspects Source: Orbital Insight, Energy Aspects

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