@tleilax___ The volumes going through at night with the help of the USA are MUCH higher than most people estimate. Especially last 2 weeks. Giving a lot of breath to the market. For UAE it's full production but for the others it's mostly destocking for now. Gives trump time, more SPR needed.
גידי וייץ כותב: "ההחלטה בעניין בן גביר אמורה לענות על השאלה אם בישראל יש עדיין בית משפט עליון שמבין את תפקידו כמגן האחרון של שיטת המשטר המתפוררת. היום אותתו כמה מהשופטים שהם מעדיפים לברוח מבשורה ולקנות זמן עד הבחירות. החלטה כזאת תהיה גילוי נוסף של התקרנפות ועצימת עיניים לנוכח הגלישה של ישראל לתהום"
https://t.co/3AzUG13ie9
I think the sell-side community will have an incredibly hard time coming up with an oil price to offset an 11 to 13 million b/d supply outage.
We tried. Zero confidence in the result.
But all I can say is that it's not $99 or whatever the fuck Brent is currently trading at.
Was thinking about that (why aren't crude futures higher) as well ...
One reason that the disruption did not force prices higher despite "jawboning" is that onshore inventories are not hit hard yet and the market is still able to "look through" the problem.
Here are some back of the envelope numbers:
1) In the context of nearterm fireworks ex-Gulf storage draws are more important than underproduction or the global draws. Assuming that Hormuz remains closed and Gulf storage is trapped behind it.
2) Hit to flows is prob. around 14mbd now, but was actually higher in the beginning of March when pipeline redirections did not yet work at current rate (note - this is different from underproduction or hit to global inventory). Let us assume 14mbd for 2 months. This is offset in part by pre-existing surplus (say 2mbd) and demand destruction (1mbd). So you have 670mb ex-Gulf draw over 2 months.
3) It is clear that this disruption mostly did not hit commercial storage yet:
- tankers that departed pre-war were still arriving until late March or early April
- there were/are temporary offsets from sanctioned oil on water or SPR
- given high refinery run cuts (up to 4mbd in March and 7mbd in April, mostly Gulf and China - credit to @OilCfd for the data) much of the draws are in the product space
4) The stress can manifest itself as either flow problem or stocks problem. For instance, April 2020 was more of a flow problem - technically global storage was never at full capacity or even at what was thought as an operational capacity (circa 75%). But the flow of builds were so large that we did hit negative WTI and Dated Brent @ $9.
Looking into the current crisis I would classify the problems into 3 categories
A) We have already guaranteed ourselves a pretty sizeable stock problem - due to already underproduced barrels and those that will be underproduced during the ramp-up period after Hormuz opens. Likely if SOH does not open in the next 2 weeks we will hit close to 1bln liquids underproduction and 800mb of global inventory draws - and under normal demand conditions we would need 1.5-2 years of healthy surplus to cover just for that. But this issue does not necessarily mean crisis or global recession - it just means significantly higher prices than pre-war. Post-opening draws due to underproduction would be partially met with Gulf storage barrels that will become available (does not change the overall inventory math, but helps with the flow problem).
B) There are also other - more localised stocks problems - related to operational minimums that @JH writes about here:
https://t.co/KAE6VjVahu
Linefill (oil in the pipeline, tank bottoms, working stock). So the real available capacity is far lower than nominal stocks (2bln of crude).
C) Also the flow problem is getting materially worse as we speak - since many of the mitigants that existed 2-3 weeks ago (oil on water - both from sanctioned barrels and from tankers completing transit) are gone.
I imagine that if we end up with crazy price spikes it would be because of B and C....
5) Ultimately demand destruction will happen/is happening on product side. So once the market gets into demand destruction mode, we won't really have 10mbd crude draws - we will have demand destruction on product side. But I imagine that before that we will draw whatever is the real withdrawable crude inventory ...?
6) I do not necessarily think that $25-30 difference between prompt (1st) ICE Brent contract (June) and Dated Brent is "wrong" - given the time difference (10-30 day loading for Dated vs end of June for ICE Brent) and extreme stress we are experiencing. E.g. WTI May/June spread was as high as $16 last week - and the spread between Dated and ICE Brent is "closer" to "now" and in a more affected region.
@JH, @Rory_Johnston, @HFI_Research, @OilCfd - curious what you think.