Big_Orrin Profile picture
May 3, 2020 10 tweets 2 min read Read on X
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

Sep 18
1. Physical traders rarely negotiate fixed price for their oil.

What they do negotiate is
- The differential
- The benchmark off pricing
- The pricing period
- plus a few other non-price related factors.
2. Those three things are what they typically haggle over

Differnetials are small a few dollars but they tell you supply/demand situation because you can look at them over a long period. Physical traders talk to each other an share information. Includes Platts, Argus, etc
3. The benchmark negotiated usually is determined by what benchmark the refinery sells their products. Refineries have a natural hedge and try to buy the same amount of crude a day as products they sell.
Read 15 tweets
Sep 12
1. Oil markets fall under the McNamara Fallacy

It was named after Robert McNamara, the US Secretary of Defense during the Vietnam War. And involves making a decision based solely on simple and easy quantitative metrics and ignoring anything difficult to interpret
2. He thought success in war could be easily calculated. In this case the one with the highest body count is the loser.

Spain does this for school teachers where those with best governmental exam results become teachers even if they are useless at teaching.
3. Daniel Yankelovich on McNamara Fallacy:

1. measure whatever is easily measured
2. disregard that which can't easily be measured or given a quantitative value
3. presume that what can't be measured easily isn't important
4.say that what can't be easily measured doesn't exist
Read 6 tweets
Sep 4
1. Short 🧵

The idea the oil market will be in a huge deficit going into 4Q 2024 is not being shown by reality in the physical market.
2. @Amena__Bakr and @energyintel suggested that there would be a deficit of 1.75mbpd in the 2H of 2024. Now let’s put that in perspective.

If it is average over the whole of 2H then at the end of 2024 that deficit would be closer to 3mbpd. That is 3% of demand
3. The only phrase about the oil market supply is 1% below demand is an oil crisis, 1% above demand it is a glut, so what is 3%?

That is more than was being talked about being lost at the beginning of the Russian/Ukraine war. That costs differentials to skyrocket
Read 12 tweets
Jun 11
1. Short 🧵

There are a number of problems with this graph and the forecast for up take of BEVs. The curve is way too steep.

The biggets factor is the purchase of total new cars.

New car purchases are less now than in 2019. they were particularly low through 2020 to 2022.
2.
New car sales in EU
2019: 13028948
2020: 9939418
2021: 9700089
2022: 9255926
2023: 10500000

Despite growing from 242k to 1.5m in that period BEV got a huge boost in their market share through 2020-23 because total car sales fell by nearly 30%.
3.
In the 7 years prior to COVID in 2020, New car sales grew at an average 4.4% each year. If that had continued, New car sales in 2023 would have been 15.5m cars. that would have left BEV market share at 9.69% not the 14.3% it acheived in 2023.
Read 8 tweets
Mar 18
1. Short 🧵on what will be the most overhyped flop in the oil market.

The answer is the Trans Mountain Pipeline.

Canadians think this will have the effect of increasing demand for Canadian crude oil, putting up the differential and make Canadian producers more profitable.
2. There is significant problems in that idea.

Main one is it might create too much supply for demand. Here are the problems.

- The crude is very heavy has huge amounts of sulphur but worst of all most will have aTaN of between 1.6 and 2.2.

Few refineries can refine that
2.
The problem with acidity is where it comes out in the refinery. That acidity number will increase as the crude is seperated. Because this is very heavy crude, the light crude it is blended with will not help disperse the acidity.
Read 11 tweets
Mar 16
1. Short 🧵

Remember Ukrainians are not reducing Russian revenues hugely at moment. More crude oil exported will balance less products.

- But it is doing medium/long term damage to Russian infrastructure at a time where all skilled workers are working in the military complex
2.
- being done at a time when refineries already under strain because of sanctions (quality of spare parts, catalysts, etc.)
- Russia does not have ability to import products in the quantity to replace lost refinery capacity. The Russian system is designed to export not import
3. Ukraine has been restrained against Russian oil and gas until lately
- Both gas and oil pipelines running through Ukraine carrying Russian hydrocarbons have been untouched
- Ukraine not used their aquatic drones against tankers (full or empty) unlike success against warships.
Read 11 tweets

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