1. Sunday Night Tweet storm

Many stories are coming out about the reduction in Jet demand will lead to a glut of kerosene. It is very unlikely to happen as refiners will be able to reduce the amount of kerosene production and be able to balance the market

#OOTT
2. How will refiners do this. They will run the gasoline cut and diesel cut differently. Before COVID-19 kerosene was the highest margin product. Refiners had incentives to produce as much as they could. Therefore they did this at the expense of gasoline and diesel.
3. What refiners will do is they will
A) increase the cut temperature of gasoline therefore absorbing the lightest part of the kerosene cut. This could absorb around 10-15% of the kerosene production.
4.
B) decrease the temperature of the diesel cut. This could absorb the heaviest pasty of the kerosene cut. This could be around 15-20% of the kerosene cut.
5. Refiners can also play around with how they operate their hydrocracker, FCCs and Cokers to minimise the amount of kerosene produced.
6. US already showing it is possible and not a problem

US production of kerosene was 1.8mbpd just before COVID-19 affected demand at a refinery utilization of around 90%. Production is currently 600kbpd at 70%
7. Refinery utilization has fallen 22% while kerosene production has fallen 67%.

Last week demand for kerosene in the US was 800kbpd. It indicates that refineries can deal with the fall in kerosene demand without creating a glut.
8. But it does mean refinery utilization will be less as more gasoline and diesel will be produced per barrel than before.

However, one problem going forward will be the crude quality. The vast majority of crude being cut by OPEC+ will be medium and heavy crude oil.
9. Crude from Saudi, Iraq, Kuwait, Canada, Brazil, Iraq, Russia, etc will reduce the amount of residue and middle distillates from the market.

Add in that much of the build in inventories are light sweet crude e.g US, Nigeria, etc. Which have lower distillate and residue
10. This means there could become an imbalance in the products produced in the period until OPEC + finish their cuts.

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More from @Big_Orrin

25 Nov
1. Seen a lot of paper traders telling Physical traders what they should do with regard to the SPR release and how much money they could make. $5/bbl seems to be the consensus level. On 1mb that is a cool $5m profit.

But sadly reality is not like paper trading.
2. Paper traders suggest you sell the prompt month you where you receive the crude oil and then buy back the month you need to return the crude oil to the SPR. Simple!!!!!!!

Not quite.
3. Lets take the costs on the physical transaction part.

First the easy bit. the cost charged by the SPR

For one year it is 3.9% to be repaid in extra barrels.

So 1mb received requires payment of 1,039,000bbls

Cost: $300k
Read 18 tweets
23 Nov
1. Thread

Now seen what Biden is doing, I have been hearing it is not enough, it is worse than expected, etc. But putting potentially 50 million prompt barrels in market is not nothing. It is 1/9th of total US commercial crude inventories and 3 days of US refinery throughput
2. It is 50 WAF cargoes, or 83 North Sea cargoes. In WAF terms that is equivalent to 1.5 Angolan programs and 1 Nigerian. These two programs are already finding it difficult to sell.

So to stuff that amount into a market in as little as 15 days is huge.
3. Now the argument that I have seen most this last week is about OPEC+ retaliation as if it was some level of equivalence. That by suspending their increases OPEC+ would put it to Biden. So let’s do the numbers.
Read 9 tweets
23 Oct
1. In Europe data showed that 19% of new cars are of Electric in nature. What is interesting is how that number is occurring.

In Spain, EV prices are not falling even with subsidies. What is happening is gasoline and diesel car prices are going up.
2. A Volkswagen Golf could be found for around €18k brand new before COVID, now lowers price is €23k. Dacia Sandero was €7k now is €8k.

It is happening across the board that new gasoline/diesel prices have risen while EV prices have remained static.
3. So what we are seeing is lower income people being forced out the new car market while those on higher incomes benefit from subsidies. So emissions are not going down, because the market is limited on who can pay the price for an EV.
Read 4 tweets
23 Sep
1. This is a good listen but the most important factor for the energy transition was barely mentioned which was the backup Energy system. This is the factor that will make or break the energy transition. A reliable back up system.
2. In a push towards renewables, it’s intermittency means a back up system is needed much more and also needs to be much bigger in size. The U.K. saw prices over $3000/ MWh and a significant factor was the loss of its wind generation system.
3. The U.K. has. a 20GW metered system but during the last 3 weeks it was producing less than 3GW. That means the back up system needed to be 17 to 20GW. This is far bigger than if the U.K. lost a nuclear power plant (biggest is 3.2GW) or a Gas Plant (biggest is 1.9GW).
Read 11 tweets
13 Sep
1. Thread: thought I would put all tweets in one place

Platts and Physical market analysts indicated today that they expect China to release much more from their strategic reserve than previously thought

The believe between 5 and 10 million tonnes (36 and 73mb)
will be released
2. That means before the end of 2021 100mbpd or more could be released from global strategic reserves into commercial inventories for refiners to use

China: 36-73mb
US: 20mb plus crude swaps
India: 4.3mb
3. Why is this significant? because strategic inventories are seen as off market unless an emergency. For China to release from their SPR to affect price suggests that Chinese strategic inventories have more in common with commercial inventories than traditional strategic ones
Read 12 tweets
6 Jun
1. Thread- The current narrative is crude Supply i.e. production is less than Demand therefore market is tight. This is the narrative put out by the IEA, OPEC etc. But it is wrong Supply is not equal to production and demand is not equal to consumption.
2.
Supply= production + change in crude inventories

Demand= consumption + change in product inventories

In between is refiners trying to balance these equations

Currently product inventory are building while crude inventory draw

Therefore production roughly equals consumption
3. In the case of crude oil a production is being augmented by inventories to equal supply while inventories are being used to store excess barrels of product.

It means the oil market is always in a supply and demand balance while inventories exist.
Read 25 tweets

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