Thread by @Big_Orrin

1. Thread

Lot of talk on the floating storage in China but it needs to be looked at more carefully than just the big number that is being posted.

The tweet below shows the problem is mainly in one area. Qingdao

#OOTT

https://twitter.com/Fygaren11/status/1300938473579458561

2. When looking at the ships that have arrived there are different kinds
- cargoes waiting to unload
- distressed cargoes that are still looking for a buyer
- floating storage which are cargoes waiting for the price to go up before being sold.

3. Knowing what each cargo is important because many of those cargoes may not be unloaded for months (floating storage) nor belong to Chinese refineries (floating storage, distressed cargoes).

4. Some of these cargoes may also be deliveries to INE storage as part of the Chinese crude futures contract. These cargoes have yet to find a final destination. Some of these cargoes have already been exported and sold onto South Korean refiners.

5. But what is the most important is how many barrels a day are being discharged through Qingbao particularly. If discharge rates are falling it could suggest a problem of storage availability in China. But if it is remaining the same it suggests China just bought a lot of crude.

6. China bought significant amounts of crude between March and June. This was bought while prices are cheap. There is expected to be significantly less crude oil arriving from September onwards to possibly January 2021. This backlog then is not a worry for the market.

7. Chinese buying had much more of an effect on taking prices back to $45 than OPEC cuts. Without there excessive buying the market would have been around 1-2mbpd further oversupplied from March to June. Around 125-250mb.

8. But what should be a worry is that these high deliveries will not continue. Deliveries from September to January already look much weaker and it is likely OPEC+ May have to slowdown or stop the increasing production.

9. Mar-Jun Chinese buying was seen by record high level of differentials during that period. Now differentials are falling as China has cut back significantly its buying. Dated Brent is now trading near WTI levels while very short programs of Urals in Sept are seeing diffs fall

10. In other words high “floating storage” numbers at Chinese ports is actually a bullish sign as demand for Chinese for oil was high. Falling levels is bearish as it means China is buying less crude oil. It is the other way round to standard theory.