Let us look at US crude & product inventories. It remains the largest refining system globally & by far & away the most transparent market which is why US inventory data matter for crude oil prices globally (although less so now than in times pre-global satellite data).
All-in, US crude & product inventories incl. SPR are 35Mb below their 10-year average at 1,825mb (blue line). They are 100Mb, give or take, away from hitting a decade low. With 50Mb SPR release, we may get their in Q1 2022 and subject to Omicron effects.
2/..
The same data in a 5-year average scenario? We're already 125mb below its 5-average. Kind of interesting. Mind you - commodities price at the margin. So this is an interesting combo with WTI at $68/bbl (ex Macro Set-up).
3/..
Why is this interesting? Bc the current refinery run rate (=demand for crude oil) of 15.6mbpd (million barrels per day) remains "Covid-19 constrained" and will go back to >17mbpd (or higher) long bf runs go lower, say by 2028, to due the global energy transition.
4/..
Here is a seasonal perspective for refinery runs which illustrates the massive Covid variant effects in 2021 alone as well as a massive reduction of its 5-year averages - starting in March to December - due to the run collapse in the range of 12.5 to 14.2Mbpd back in 2020.
5/..
The Covid 2020 effect is best illustrated below. So expect the US refinery system to be back in a 17mbpd range in 2023 by the latest, but more likely post H2 2022 - and subject to not more Greek alphabet words spooking politicans each and every time.
6/...
Back to 5-y inventories. US crude inventory incl. SPR (which under Biden is new marginal supply barrel) is at 1,036Mb. So at a normalised 17mbpd run-rate and ex product stock & indigenous production, the US can theoretically supply its market for 61 days; ex SPR for 25.
7/...
For good order sake, pre-Covid the US was a 20.5mbpd crude products consumption market. The difference bw 17mbpd US refinery runs and demand is imports and change in product inventories.
8/..
So why is 25 days commercial inventory of Tweet 7 interesting? Because if we look at "US Commercial Crude Inventory in Days" for the past 11 years, we were in that 20-25 days range between 2010-2014.
9/...
Source: Burggraben analysis; Bloomberg
So what? Well, that was the period when WTI traded bw $69-114/bbl. WTI only dropped into the "lower for longer range" of $55-65 with the STRUCTURAL outlook of sustained US shale oversupply, starting in September 2014. Rightly so, as inv days of subsequent years illustrated.
10/.
Back in 2018, we published our bullish oil thesis - 3 years early - including our "Oil Price Framework" in which we argued that price goes >$100 when, among others, d/s is faced with a structural deficit (the reverse of 2014 outlook). That remains our guiding principle.
11/...
We also included our "Drivers of Price Formation". In a market full of noise, see the forest for the trees. Comparing back then with today, our "barrel counting outlook" for a STRUCTURAL DEFICIT strengthened due to the permanent capital stravation of US shale (green shift).
12/.
What changed is the role of China. It added tank capacity to strategically make use of price vola & remain at "baseline purchases" if prices raise. Looking at China's commercial inv days, they are back 50 now after substantial inv draws.
13/... Source: Burggraben; Kayrros
Comparing the US and China's crude reserves incl SPRs (China classifies much less SPRs vs US), but have around 62 days of reserves. This tells us that China is a likely buyer above baseline here, although its property crisis may mean it will hold back for another quarter.
14/..
Put differently: The CCP wants total control. So China's Majors will be allocated buying quotas on the basis of their inventory data first. Those inventories are, despite substantial capacity addition, back at their 2016/2017 levels. But we are sure you knew all that :-)..
15/..
What also changed? The macro set-up. Barrel counting or - god forbit - refinery margins/diffs etc, as we often explained, is not enough to understand oil prices. In fact, it is often a distraction as seen last week. Where are we on macro?
In all, US & China inv. are low from a 10-y avg perspective once runs are normalised due to return of interconti travel. By then, oil markets will have used up OPEC+ spare, face a structural deficit but also a "walking on ice" macro regime. Vola both up & down.
Thx; pls share
• • •
Missing some Tweet in this thread? You can try to
force a refresh
Let me share some real time data on the EU natgas market that are hard to get.
European gas consumption for 28 countries matches last's years to the cubic meter (Oct 2022 - Oct 2023 = Year 2022).
However, consumption remains 17% below 2019/20 season.
Is there a supply issue? Rubbish. The global LNG market is oversupplied from every corner; EU storages will be filled by end of Aug where we sit. We have too much gas.
#TTF 1/4 (in mcm/day and YTD)
Three factors matter why there is less consumption vs 2019/20 season:
1) Milder weather: 70% of total consumption is temperature related. Temperatures are milder, thus Europe consumes 14% less vs 2019/20.
Is that permenant? It sure looks like a trend where I sit. But climate scientists can answer that best.
Households Consumption; 2/4
2) Less power generation: Europe replaces more and more natgas in the grid with solar & wind and in the case of France with better capacity utilisation of its nuclear fleet. That adds up...!
India likes a "GOOD" deal - also in crude oil - and is about to teach Russia a lesson what that means.
Spoiler 1: it's not a pretty one!
Spoiler 2: China & Turkey will learn quickly..!
Let's look at the Indian-Russo crude oil bromance.
1/x Thread
Before the invasion in Feb 2022, Russia exported some 2.8mbpd (55%) of its 5.5mbpd crude to Europe by way of pipeline (Druzhba) & sea transportation (seaborne).
But not just crude oil...
2/x
Russia also sold products such as diesel or jet to Europe for a total of 1.4mbpd in petroleum product exports.
In other worlds, G7 sanctioned as introduced in Dec 2022 required 4.2+mbpd of crude & products to be re-shuffeled in globally. Big numbers!
For now, Red Sea disruptions due to Houthi attacking commercial vessels randomly remains a ton-mile story, not a crude oil story.
Within different shipping segments the picture of diverting cargo around the Suez Canal remains a Container Vessel story, to a less extent also a Product Tanker & Crude Oil tanker story.
Container Vessels owners have been the most consequent in diverting cargo.
Since Nov, the number of container vessels crossing the Suez Canal has collapsed by 80% in both directions.
2/n
Crude Oil tankers from the Middle East (Saudi Arabia; UAE; Iraq; Kuwait; Qatar or Oman) to Europe are also lower but our high frequency data does not yet show a similar collapse.
It also nicely illustrates how changing Russian crude flows (Urals diverted to India & China and away from Europe) have increased traffic through the Suez Canal - good for Egypt as Russian dark fleet vessels will or cannot seek an alternative route to ship oil from the Baltics to India.
Brazil is is an interesting microcosm to study in the oil industry.
It's a large, growing consumer of petroleum products. It's the 8th largest producer of crude oil in Dec 2023 as well as a large producer & consumer of biofuels.
Most importantly, it's energy agency reports the data in detail & timely (unlike most countries globally).
1/n
Brazil's resource wealth (mainly offshore) is well documented but it struggled for years to follow through.
Finally, it does with an exit rate of 3.9mbpd of oil production in 2023. Only the US, SA, RUS, CAD, IRQ, CN & IRN (incl condi; in this order) produced more that month. That's 50% growth since Jan 2018!
2/n
Better still, most such production growth reaches the international market. In Dec 2023, Brazil exported 1.7mbpd of crude oil - an ATH.
Remember, in oil net exports is the key number to measure.
Shall we look at the European NatGas market together?
Will Europe have to freeze this winter, after much mild weather luck last winter?
Will TTF drag coal prices up as last winter?
Thread 1/n
Our rolling forecast upfront for those of you with a little ADD:
Best-estimate today, Europe will exit the winter 23/24 in March at or around 40% storage levels (red line) which suggests TTF doesn't have to spike, ceteris paribus. Is it a bear? Neither.
Let me explain.
2/n
Natgas has unique characteristics for a commodity:
Supply is inelastic while demand is highly ELASTIC: Colder temps >> demand goes up exponentially & vice versa.
Not all demand is equal but heating buildings (HH & retail demand) is 65-70% of winter demand (Oct-Mar).