Can crude really touch $100/bbl?. After initial commentary globally around the probability of $100/barrel on crude, the narrative appears to be moderating a bit. The global oil market that was in a surplus of 2mn barrels per day (mbpd) in 2020 and turned into a...(1/6) Image
...deficit of (1.6)mbpd during the first six months of this year 2021. This deficit is an artificial one, on account of the production cuts imposed by the OPEC+ to keep prices elevated. Commentators appear to increasingly feel that crude could peak around $80/bbl. Higher...(2/6)
...spare capacities and the attractiveness of selling at elevated crude prices on the one hand could lead to an increase in supply on the sidelines. On the other hand, experts see a realistic possibility of Iranian crude resumption by the end of this year. While...(3/6)
...the recent price rise is largely on the back of planned supply cuts, demand is also on the rise. However, the demand pickup is more on the back of depressed demand and therefore the . Global oil demand for 2021 is broadly seen at 3mbpd below what was seen in...(4/6)
...2019. With supply curbs in place, some commentators see the demand-supply deficit at 0.8mbpd. There is now a focus on the infections curve, possibility of Iran oil resumption and the likelihood of a shale resumption, if crude staying higher for longer...(5/6)
...($60/bbl is the shale breakeven). In addition, against the 0.8mbpd deficit, spare production is at a record high of 7mbpd. Viewed against all of the above, $100/bbl appears a stretch for now.(6/6)
Charts from Yes Securities' comprehensive report Oil-nomics. Image

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More from @arjungn80

12 Jul
Does the #US10Y yield puzzle affect India? An earlier tweet covered the various angles to the US10Y yield puzzle. The perceived softness around #USgrowth appears to stand-out as a prominent reason. During the same time last week, we saw a sharp rise in the Indian 10Y...(1/12)
...yield to 6.18%. This appears to have been on the back of the #RBI's surprising (disappointing for traders/underwriters) choice of picking relatively illiquid papers for its new tranche of G-SAP 2.0. The announcement of a new 10Y benchmark paper auctioned on...(2/12)
...Friday, with a higher traded yield was another reason. Are the US and Indian bond markets related in anyway? The answer is an obvious yes. Given that the US is a key global driver, the #Fed's policy rates naturally push monetary policy of emerging markets and...(3/12)
Read 12 tweets
11 Jul
Five things that can keep crude prices in check. The conversation around crude prices will not be complete till one takes a closer look at the supply possibilities. The last tweet touched about Iran. Note here that the end of Iran sanctions is expected to bring...(1/7)
...about a near-term increase of 0.5-0.7mbpd of Iranian crude into global supply. It is interesting to learn that Iran used to export 2.4 mbpd, compared to the current level of 0.1 mbpd. Now, the numbers get even more interesting when one looks at US shale. The...(2/7) Image
...break-even for shale is around $60/bbl and for some smaller shale sources like Bakken, the break-even is even lower at around $45/bbl. Therefore, the longer crude prices stay elevated, higher is the probability/incentive for shale production to make a comeback. Total...(3/7) Image
Read 7 tweets
7 Jul
Immediately after a sharp runup in crude, a drop appears to have puzzled some. The drop in crude appears to be largely on the back of a moderation in the earlier run-up in price. Heres a quick backdrop on the entire issue. During the pandemic, the OPEC+ countries...(1/12)
...agreed to production cuts that would span a broad 2Y period of May'20 to Apr'22. This was to keep crude prices from collapsing on the back of a sharp drop in demand caused by the pandemic. The production cuts peaked to around 10.3mn barrels per day (mbpd) in June'20,...(2/12)
...coinciding with the peak of COVID-19 globally. In Jul'20, it was agreed to taper the production cuts to 7.5mbps till Apr'21, as demand started picking up. All of this went broadly as per plan. In Apr'21 it was decided that the production cuts would be tapered...(3/12)
Read 12 tweets
6 Jul
We need to learn to live with COVID-19 and its variants. This appears to be what bellweather economies seem to be saying. While we are all aware of the US opening up, almost entirely in July, Singapore, and UK stand out in particular. Singapore is moving away from a...(1/7)
...“Covid-Zero” strategy of completely stamping out the virus from its country through strong border controls/aggressive contact tracing/social distancing. Singapore is now moving to a strategy that focussess on reopening its economy through mass-vaccinations with...(2/7)
...a broad assumption that COVID-19 would not completely exit the country for the next few years. Singapore also senses that it is falling behind its western counterparts on the recovery trajectory. It plans to live with the virus that would be contained through...(3/7)
Read 7 tweets
5 Jul
India and its oil-dynamics. We spoke last week about the two key known unknowns that the global and domestic markets were closely tracking. This week, we take a look at India's oil dynamics. Before we get to the specifics, it is very important to note here that a rise in...(1/9)
...oil prices in itself does not matter. It is why they rise that is of more importance. If the increase in oil prices is because of an increase in demand, then it remains a positive. This is because like a rising tide lifts all boats, the increase in oil prices...(2/9)
...(in this scenario) is a result of growing demand globally and domestically. It is because of this that the secular rise in oil prices to $76 in 2007 from $23 in 2003 was not seen to have any negative macro stability implications. However, if the rise in prices is on...(3/9)
Read 9 tweets

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