Big_Orrin Profile picture
20 Oct, 13 tweets, 3 min read
1. OPEC+ expect a large stock draw into year end. The problem is where is it occuring? OECD Refineries typically hold a specific number of cover days of production. With margins bad, does not matter how cheap crude is they will not increase cover days because of cash flow.
2. Differentials and CFDs remain weak which indicates low demand for crude oil. Floating storage is increasing at points of production but falling at points of discharge. Both indicators of low demand. Refinery runs are not increasing in the OECD with COVID surging.
3. We are already trading December WAF loading barrels which means arrival in China in Jan/Feb and then processed in Feb/Mar at earliest. ME barrels have been bought for November which means arrival Dec/Jan. So all the buying into year end has already been done for China.
4. Sellers are being told that they cannot discharge cargoes for Chinese Independents until 2021. Even then, with port congestion, it is unlikely you will see new independent buying enter Chinese import data until February (beware Chinese new year) or maybe March.
5. Independents have not yet been awarded new quotas for imports in 2021 yet. Therefore, they officially cannot buy anything at the moment. But sellers are taking the risk of sending boats now without any guarantee of being able to discharge. That is how soft the market is.
6. Even with Russia maximising crude flows to Asia (Kozmino etc.) and low NWE exports, North Sea floating storage is continuing to build. NS and med barrels need to be sold locally but with a glut of light sweet there appears to be an overhang in the Atlantic basin
7. Remember, Europe is the dumping ground for Light Sweet. If the market is tight NS will see price increases 1st. But with Libya back, Nigeria/Angola slow, Med and NS forced to sell locally, it likely means low exports from the US to Europe.
8. Overall It means that differentials and CFDs remain very soft and actually weakening.

This is the opposite of a market that would be seeing big inventory draws. A high inventory draw market would be seeing high differentials and a backwardated cfd curve.
9. Why? Because sellers would be wanting to sell their cargoes in floating storage or loading before they sell their cargoes in tanks as it costs them more. Once they had been sold then onland inventories are drained.
10. So where are inventories being drawn? Not at producers (Saudi has shown increased inventories). NWE tanks are full requiring floating storage. Saldanha bay continues to fill. WAF cargoes being moved to sit off Gibralter to wait for buyers.
11. Only OECD country showing draws is the US and that is partially down to OPEC+'s minimising sales to the US. It is the least opaque data so OPEC+ hope that by drawing down US inventories it pushes the price up. But draws are less than 1mbpd anyway.
12. So is OPEC+ assumptions that Chinese inventories are drawing strongly? Satelitte data of Chinese storage does not suggest that is happening.

So are OPEC+ accurate with supply but overestimating demand for their numbers?
13. Before the bulls start their abusive nonsense. i have no skin in the game. I dont trade.

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More from @Big_Orrin

24 Sep

Had a few comments about me asking whether peak supply may come before peak demand. So I thought i would write in more than one tweet what my theory is. And it is only a theory.

2. Over the last 6-7 years investment has been low and we have not seen its effect yet. Shale growth covered the demand growth but other projects covered the loss of crude oil as fields started to age and degrade.
3. The lack of investment means that at some point he projects needed to cover the degradation and ageing of fields will just not be there to cover these losses. Shale will grow but shale was a very specific period of time due to capital availability.
Read 10 tweets
6 Sep
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

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).
Read 10 tweets
30 Jun
1. Thread: the decision of Saudi Arabia to start a price was is probably the worst decision they made because they really did not understand the implications of their actions.

2. First they failed to realise that Trump and The Us had a floor to the price they were willing to accept oil. I believe Saudi thought a price war would please Trump as it brought down the price of gasoline. Huge mistake as can be seen by their back tracking.
3. It showed that Saudi maybe the biggest producer and with the most spare capacity but the swing producer is the USA not because of shale but because they can make Saudi increase and cut their production.
Read 9 tweets
12 May
1. lots of graphs showing floating storage/oilonwater have popped on my timeline in last week. Problem is that they underestimate oilonwater and overestimate floating storage

The problem is they do not take into account the intentions of the seller of the crude oil
2. They do not take into account correctly what is a distressed cargo.

A distressed cargo is a cargo that a seller intends to sell immediately but has not been able to. The seller has been forced to load the cargo but continues to try to sell.
3. Floating storage is the intention of loading oil on a boat and holding it for a period of time before selling. The cargo will be sold at some point in the future when the seller decides to put it in the market.
Read 5 tweets
3 May
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

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.
Read 10 tweets
8 Mar
1. Thread

How do you sell more oil?

In the short term it is not by killing the flat price

You do it by Dropping differentials and make refinery margins higher, therefore refineries buy more. Product Cracks fall due to oversupply stimulating demand.

2. Why has flat price have no real effect on refinery buying?

It is because Product prices are typically calculated by a benchmark oil price +/- crack.

Therefore as the price of oil drops so does the product price. Refinery really gains nothing from it.
3. But differential is different. It is basically the quality value of the crude versus the benchmark.

In theory it should be + or - to the benchmark depending on the margin it produces versus the benchmark in an Atmospheric
Distillation column.
Read 11 tweets

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