Underlying figures and additional commentary inside. Takeaways are positive. Our inventory build is below consensus and while AG-OPEC exports began February up from the January average, if prior months are any guide those should trend down as the month progresses. Also, Other Swing Supply was revised down and its 4-wk average dropped w/w.
Search Coverage List, Models & Reports
Search Results1-10 out of 118
The refining margin environment remains materially impaired by the demand headwind from cNoV. Chinese product exports have not come down, and crude import volumes remain near highs. There have been anecdotal, anonymously sourced media reports indicating Chinese refinery throughput could be cut by up to 2MM bpd, but real time import/export data does not support that, and timing is uncertain. Without visible declines in China’s refined product exports, the onus is on US/EU/OECD Asia refineries to deliver the capacity utilization response to lift distillate cracks.
The base case for global oil demand growth is now that China will be flat on the year, which takes about 0.4MM bpd or 40% out. The forward distillate curve has taken the outlook hard, compressing ~$6/bbl for 2020. The effect is that IMO 2020 benefits are still in the futures market, but instead of turning mid-cycle demand into a peak year, it now lifts recessionary conditions into a mid-cycle environment. For January, diesel crack spreads against Brent were still 3% higher than the prior 4-year average.
It was reported this morning (02/06/20) that OPEC+ failed to reach a production cut deal in response to the demand impact of the Coronavirus. Oil prices have not reacted to the headline. Part of the failure to agree could be a Russian protest over the procedure; the OPEC technical committee leaked its recommendation of a 0.6MM bpd cut before OPEC+ convened, putting Russia in a squeeze. That’s a no-no. However, there are also fundamental reasons why Russia might have pushed back on the cut even with reports of material demand shock from both quarantines and the GDP impact.
Underlying figures and additional commentary inside. Takeaways are modestly positive. Our inventory build is in line with consensus and January AG-OPEC exports continued to trend down through the month and finish flat vs December. Latest 4-week averages of volumes to the US and Asia were down. Other Swing supply has continued to trend up, however.
Over the past week Refiners have underperformed broader Energy despite good 4Q19 results from Large Caps. Over that time the oil demand risk from coronavirus has been interrogated, with the highest agency estimates determining >3MM bpd of oil demand decline as a result of China quarantines. Upstream has likely outperformed Refining recently because crude oil has a constructive supply set up, with US growth decelerating and the likelihood of an additional OPEC cut. Therefore, the perception is that demand headwinds will accrue more to refining margins than crude prices, although both will be under pressure. IMO 2020 becomes an afterthought as the other 95% of global oil demand slips.
Underlying figures and additional commentary inside. Takeaways are neutral overall. Our forecasted inventory build is above consensus, though we are also continuing to see January AG-OPEC exports fall as move through the month, plus Asia-bound AG-OPEC volumes ticked down and exports to the US remain in the basement. Other Swing supply was up w/w, though not to a large degree.
With weakness in diesel crack spreads and global natural gas prices, along with a confluence of other negative industrial indicators, 2020 feels a lot like 2016 to start, in that commodity pressure is demand-driven. Incidentally, while painful at first, 2016 ended up being a banner year in Energy, particularly for long/short strategies. Underlying data must improve in order to hope for a comparable outcome in 2020, but this note explores some common threads and how the 2016 playbook might translate to 2020 for IOCs and Refiners.
We believe buyside positioning in Refiners is deeply skewed to Coastal vs Mid-Con assets (the IMO 2020 trade). Just last week, the announcement of a Phase 1 China trade deal suggests elevated US crude exports for the coming two years, which in our view implies a narrower Brent-WTI spread. Thus, even as IMO 2020 coastal complexity benefits are slow to materialize, very fresh data points still support a coastal positioning skew. With such one-sided positioning, however, there could be a relative performance reversal if Brent-WTI were to unexpectedly widen in the near term, the probability for which has increased in recent days.
Underlying figures and additional commentary inside. Takeaways are neutral. Our inventory build is larger than consensus and Asia-bound AG-OPEC exports have risen, but US-bound volumes and overall January MTD AG-OPEC exports have remained subdued. Other Swing supply was also essentially unchanged vs the prior week.
- 1 of 12
- next →