Thread by @Big_Orrin

1. Thread

Here are reasons I see the physical oil market as nowhere near as tight as people believe it is

A) Tight market is usually equated to supply/demand balance + amount of spare capacity in market. At moment there is a huge amount of spare capacity that can return quickly

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B) Also there is a high level of excess inventories. Any loss of spare capacity at moment is such that spare capacity will still be significantly in excess of normal. Therefore, the perception of a shortage of oil is overhyped.

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C) just because excess inventories are being drawn does not mean the market is tight

Excess inventories and normal inventories are different

Normal inventories = risk management
Excess inventories = production

Normal inventories are not currently being touched.

4.

Currently supply = production + draw from excess inventories

As excess inventories tend to 0 then production tends to supply.This is what OPEC wanted. With excess inventories remaining and huge spare capacity, the market is not short hence not tight.

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D) So where is the evidence? large amounts of cargoes  remain unsold. Differentials are falling with some at their lowest since last April during price war. Currently Refiners are able to choose what crude oil they want. In a tight market you are left with what is available.

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E) US choosing to import insufficient crude oil and continuing to exporting large amounts. US refiners can pay more for local crude than anyone else because no freight costs. If US was such a tight market the opposite of this would be happening.

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F) OPEC+ intentionally cutting production. Production can be restored at anytime. Saudi voluntarily cut 1mbpd in Feb and March but exports in Feb higher than January by 500kbpd. Therefore, is oil really that scarce?

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G) OPEC producers intentionally restricting quantities of crude oil to the US to reduce the most visible inventories. If market tight they would sell to the highest bidder, no matter who it was.

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H) Chinese ports with falling delays and lower floating storage, means China is importing less than before as ports able to discharge the backlog. China also buying dark oil from Venezuela and China that is believed to be off the market. So more crude than market perceives.

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J) China has 100-120 days of total crude inventories. That is more than the 90 days they initially aimed for with SPR. SPR now includes commercial inventories and have little place to put it. Add in significantly increased products SPR. So Has Chinese SPR purchases stopped?

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K) India already showing product demand has fallen in February over a January as high oil prices affect demand. Oil refinery throughput still high and India seen to export rare cargoes of gasoline from some refineries.

12. This does not mean that oil markets will not get tight in the future but the perception they are tight now is really not the case. Once excess inventories removed and production increased to cover, there will still be significant spare capacity available to balance the market

13. Therefore, demand is the critical,factor to a tight market and not supply. But demand unlikely to return to 2019 levels quickly due to remote working, airline demand, high oil price, high unemployment and weakness of economies.

13. This is likely reason OPEC already talking about future investment rather than excess inventories. It provides excuse of not returning 1.5mbpd to the market to hold prices higher as return of demand looks weaker than previously expected. In other words oil market not tight.