This is Product Pulse, our Refining monthly note. Our Refining weekly, Capture Trackers, deals with Refining esoterica and trending topics, whereas Product Pulse is a broader view summarizing regional margins, refined product supply snapshots, and, most importantly, a monthly sector EPS mark to market.
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Crack spreads crashed below cash costs in most regions but have potentially hit a near term bottom. While demand remains impaired, crude supply should be loosening in the near term as OPEC imports land in the US and L48 production curtailments reverse. That’s the good news. The not-good news is that the oil demand recovery is slower than expected, as the commuting headwind (35% of gasoline demand) is extending in duration. Leisure travel appears to be improving rapidly (based on hotel occupancy) but even with that contribution, demand could plateau at too low a level to support a recovery in crack spreads beyond prior trough-cycle levels.
We are upgrading BP to Outperform from Peer Perform given our belief that the company has a credible pathway to deleveraging and dividend coverage in 2021, with a resultant accelerating cash ROIC profile. Our new price target is $31. This note contains a table of updated 2020 and 2021 estimates along with our Investment Conclusion and valuation commentary on Page 2.
We are downgrading TOT to Peer Perform from Outperform, with a $48 target. This note contains a table of updated 2020 and 2021 estimates along with our Investment Conclusion and valuation commentary on Page 2. Most of the analysis on both TOT and our IOC sector thoughts is contained in a companion Industry note.
We believe the crude oil market is in the middle innings of a rebalancing process and IOC positioning could begin to skew more offensive. US L48 production curtailment restarts and a wave of US import landings from the April OPEC surge could represent that last wave of very negative oil market data, after which a more favorable 2021 supply/demand balance could come into focus. We expect this bad data flow to last approximately 4-6 weeks, with potentially elevated volatility but a more constructive base on the other side. Risks remain, and broadly we expect 2021 oil demand to be lower than 2019, but the “call on OPEC” to be higher.
Underlying figures and additional commentary inside. Takeaways are positive. Despite an above consensus inventory build forecast, we view the lower US-bound AG-OPEC exports, declining other swing supply (mainly Russia) and depressed Asia-bound AG-OPEC exports favorably.
GLNG reported 1Q adjusted EBITDA of $76MM, beating consensus’ $68MM and our $72MM estimate. Voyage revenues came in above our model, as TCE earnings of $62K/day modestly beat our $61K/day forecast, while 94% utilization also ran ahead of our 92% assumption. 2Q TCE guidance was $40K/day and >80% utilization, reflecting normal seasonal patterns.
It takes sunlight 8 minutes to reach Earth, so staring at the sun is also staring into the past. Staring at an EIA report lately can be equally painful, but similarly backward looking: this week’s reported ~10MM bbl total crude inventory build (including the SPR) was partially driven by a ~1MM bpd increase in Saudi imports (preliminary estimate). However, those volumes were produced in the April program, and even though they are represented in inventory changes today, reflect a supply/demand balance that has since been meaningfully tightened.
Underlying figures and additional commentary inside. Takeaways are positive overall. While we forecast a small crude inventory build, the ClipperData feed showed exports trending down w/w, from both AG-OPEC and Other Swing producers.
The correlation between the trend in Apple Mobility Data and EIA weekly gasoline demand fell apart last week, with Apple continuing to post rising maps usage in cars but EIA demand down ~0.6MM bpd. The weekly demand downdraft is probably anomalous, since as mentioned last week we expect some weird EIA gasoline demand outcomes in a lower average demand regime, as inventory in cars is not captured by the EIA. Even with a disappointing EIA result last week, the market influence of Apple data should be tested tomorrow, as the Memorial Day Friday driving index reading of >125 was the highest since the crisis started. As a reminder, Apple mobility data is indexed to a single day – Jan 13th – representing 100. Jan 13th itself was a lower than normal demand day, evidenced by the fact that the four weeks forward from that day averaged >108. So, on a seasonal basis, a true “summer driving season” demand figure is something above >120.
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