A house divided

Published at 12:21 10 Jun 2019 by

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

Shrouded in so much uncertainty, the market is in a difficult spot right now to position for the next move. Demand is definitely soft and refining margins are under pressure. Crude differentials and timespreads should soften (and they are off the highs already) and Brent and Dubai spreads should both ease. But with supplies still falling faster than demand, the downside will be limited.

Indeed, Iranian exports have plummeted to below 0.2 mb/d, with around 0.6 mb/d of May loaded cargoes floating without homes. Venezuelan exports remain low, Saudi Arabia continues to keep its exports in check and Russian production is now starting to fall sharply as storage has filled up following the closure of the Druzhba pipeline. Outside of the US, supplies continue to disappoint.

While we think that the US has chosen to de-escalate the military rhetoric towards Iran, it has not changed its policy of maximum economic pressure, evident in the latest sanctions on Iran’s petrochemical sector. So, the back-channel contact between the US and Iran is pre-negotiations—or rather, talking about whether there is any potential for negotiations. Iran has very clear red lines around what the US needs to offer for talks to take place: lifting of economic sanctions.

Still, with Novak and al-Falih both raising expectations the OPEC+ deal will be rolled over (while our sources suggest Russia is pushing to extend but with a higher output target), the market could be in for a bumpy ride in the next few weeks. Similarly, expectations that Xi and Trump will resolve the trade war at the G20 summit may also be too optimistic as both sides are girding for a longer confrontation. While the global economy isn’t collapsing and macroeconomic data are still mixed, recession fears due to trade wars and uncertainty around OPEC will keep oil prices in check.

Brent price versus prompt spread, $/bbl Iranian arrivals by country, mb/d
Brent price versus prompt spread Iranian arrivals by country
Source: Bloomberg, Energy Aspects Source: Customs data, Energy Aspects

Log in to download

Other Perspectives publications

The Jitterbug

Published 6 days ago

2019-08-12 Oil - Perspectives - The Jitterbug cover
Users licensed for the data service can access our global balances.Macroeconomic j..

Read more

Hedging pressure

Published 1 week ago

2019-08-05 Oil - Perspectives - Hedging pressure cover
Users licensed for the data service can access our global balances.While anxiety a..

Read more

Summertime sadness

Published 2 weeks ago

2019-07-29 Oil - Perspectives - Summertime sadness cover
Users licensed for the data service can access our global balances.The prompt Bren..

Read more

Siren song

Published 3 weeks ago

2019-07-22 Oil - Perspectives - Siren song cover
Users licensed for the data service can access our global balances.Despite rising..

Read more

Fragile market: handle with care

Published 1 month ago

2019-07-15 Oil - Perspectives - Fragile market: handle with care cover
Users licensed for the data service can access our global balances.Brent prices ar..

Read more