Highlights from the August Report: (My thoughts are in blue)
> Global oil supply rose by 2.5 mb/d to 90 mb/d in July after Saudi Arabia ended its voluntary 1 mb/d cut, the UAE exceeded its OPEC+ target and US production started to recover. While OPEC+ cuts ease by nearly 2 mb/d this month and other producers restore shut-in volume, compensation for earlier OPEC+ over-production could keep world supply steady in August. Global supply looks set to fall by 7.1 mb/d in 2020 and rise by 1.6 mb/d next year. < Which means that global supply will be 5.5 million barrels per day lower than it was in 2019. So... if demand bounces back to the level it was in 2019 (101 million barrels per day of refined product demand, primarily products made from crude oil) we will have a MUCH TIGHTER oil market in 2021.
> Global oil demand is expected to be 91.9 mb/d in 2020, down 8.1 mb/d y-o-y. In this Report, we reduce our 2020 forecast by 140 kb/d, the first downgrade in several months, reflecting the stalling of mobility as the number of Covid-19 cases remains high, and weakness in the aviation sector. China’s oil demand is recovering strongly, up 750 kb/d y-o-y in June. We have revised down our 2021 global demand estimate by 240 kb/d to 97.1 mb/d, mainly due to aviation sector weakness. < Still higher than most supply estimates that I've seen.
> Global refinery intake is recovering, but the pace will lag behind the demand rebound as product inventory levels are very high. In July, crude runs are estimated at 3.7 mb/d above the low point in May, with another 5.6 mb/d ramp-up expected by end-2020. In 2020, runs will decline by 6.9 mb/d but in 2021 they will rebound by only 4.5 mb/d. Runs in 2021 will be 2.7 mbd below the historical peak seen in 2018.
> OECD industry stocks rose by 16.2 mb (0.54 mb/d) to 3,235 mb in June, and in the first half of 2020 they increased at an average rate of 1.78 mb/d. In the US, preliminary data for July show that commercial crude stocks fell by 18.2 mb. In Europe, they rose by 3.6 mb while falling in Japan by 1.6 mb. As the market rebalances and the forward price curve flattens, floating storage of crude oil fell by 35.7 mb from its all-time high in June, to 184.8 mb in July.
> Crude prices remained in a narrow ~$3.0/bbl range in July, averaging $40.77/bbl for NYMEX WTI and $43.22/bbl for ICE Brent. The forward price curve contango deepened again in July after flattening in June, as forward prices (anticipating a tighter market) rose faster than prompt prices. Middle distillate and naphtha cracks made modest gains. Freight rates fell to levels not seen in months or even years.
Summary
After steadily rising since late May, new confirmed Covid-19 cases appear to be stabilising around 280,000 daily, the highest rate since the early days of the pandemic (primarily because all nations are doing a lot more testing). Easing of the first wave of confinement measures was bound to lead to a resurgence of cases as normal activity resumed. In many countries, social distancing measures are being re-introduced along with some localised lockdowns. It remains to be seen if the increase in cases heralds a second wave or it is merely a regular fluctuation that we will see over time.
Recent mobility data suggest the recovery has plateaued in many regions, although Europe, for now, remains on an upward trend. For road transport fuels, demand in the first half of 2020 was slightly stronger than anticipated, but for the second half we remain cautious and the upsurge in Covid-19 cases has seen us downgrade our estimates, mainly for gasoline.
For diesel, there is evidence that the recovery in business and industrial activity combined with ongoing growth in e-commerce are supporting trucking activity as more goods are delivered to customers.
Jet fuel demand remains the major source of weakness. In this Report, revised data show that in April the number of aviation kilometres travelled was nearly 80% down on last year and in July the deficit was still 67%. With few signs that the picture will improve significantly soon, we have downgraded our estimate for global jet fuel and kerosene demand. In 2020, demand will be 4.8 million barrels a day (mb/d), or 39%, below the 2019 level, and in 2021 the year-on-year recovery will be just below 1 mb/d.
These are the main components of a revision to the total 2020 oil demand picture from a decline of 7.9 mb/d seen in the last Report to 8.1 mb/d in this edition.
For 2021, we have reduced the expected rebound in growth to 5.2 mb/d from 5.3 mb/d seen previously. For supply, the major new data point was for production in the United States. In May, crude output fell by nearly 2 mb/d from April’s level and, at 10 mb/d, it was 2.9 mb/d below the alltime high seen in November. However, WTI prices have averaged around $40/bbl since mid-June with little volatility, and US production is starting to rise again. < Just from shut-ins being brought back on-line.
Canada is also seeing production rising and in June output was nearly 5 mb/d, although still about 0.9 mb/d below the peak seen at the end of 2019. Recovery in the two North American giants, with Brazil also growing, comes as the OPEC+ countries ease their output cuts. In July, Saudi Arabia withdrew its voluntary 1 mb/d cut and changes in production elsewhere saw OPEC+ output increase by a net 1.3 mb/d. In August, output could rise again as the 9.6 mb/d of cuts implemented in May ease to 7.7 mb/d. However, if countries that have not hitherto complied with their quotas cut back by enough to bring them into compliance, global oil supply would not necessarily increase significantly.
Our balances show that in June demand exceeded supply, and for the rest of the year there is an implied stock draw. However, ongoing uncertainty around demand caused by Covid-19 and the possibility of higher output means that the oil market’s re-balancing remains delicate.
International Energy Agency based in Paris
The IEA Oil Market Report (OMR) is one of the world's most authoritative and timely sources of data, forecasts and analysis on the global oil market – including detailed statistics and commentary on oil supply, demand, inventories, prices and refining activity, as well as oil trade for IEA and selected non-IEA countries.
IEA Oil Market Report Highlights - August 13
IEA Oil Market Report Highlights - August 13
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: IEA Oil Market Report Highlights - August 13
MY TAKE is that there is nothing in the IEA's monthly report that should be a big market mover. Demand for oil based refined products has rebounded and demand for crude oil now exceeds production, with the delta being made up by drawing down inventories. Floating oil inventories are way down.
Jet fuel demand will be slowest to recover, but I believe gasoline and diesel demand will increase faster than IEA is expecting, especially in the U.S.
After the BIG DROP in U.S. oil production from April to May, U.S. production may increase slightly in June and July as shut-ins are brought back on-line. However, that is just temporary because at the super low level of drilling and well completion activity the production decline will resume in August and accelerate in September/October. Some upstream companies will complete more DUC wells in November and December, but the number of frac crews will need to triple to halt the production decline.
Jet fuel demand will be slowest to recover, but I believe gasoline and diesel demand will increase faster than IEA is expecting, especially in the U.S.
After the BIG DROP in U.S. oil production from April to May, U.S. production may increase slightly in June and July as shut-ins are brought back on-line. However, that is just temporary because at the super low level of drilling and well completion activity the production decline will resume in August and accelerate in September/October. Some upstream companies will complete more DUC wells in November and December, but the number of frac crews will need to triple to halt the production decline.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: IEA Oil Market Report Highlights - August 13
U.S. Oil Supplies Rapidly Draining, As Demand Rises
By Phil Flynn Aug 13, 2020 08:19AM ET
Are you ready to play the drain game? Demand is rising and supplies are falling. That will help continue the bull market in crude oil. The Energy Information Administration (EIA), in its weekly report said that “U.S. oil supplies are draining fast because of falling production and lower imports and a significant rebound in oil demand. Total demand in the U.S. spiked by 1.2 million barrels a day to 19.37 million barrels the best reading post-COVID."
Crude supplies had the largest three-week drop in history in the all-important Gulf Coast as the U.S. is feeling the impact of the OPEC-Plus production cuts. The drain in U.S. oil stocks may go global as International Energy Agency (IEA) said that global oil demand exceeded supply in June and that would imply that global oil stocks will drawdown for the rest of the year. So barring any major setbacks due to a second wave COVID 19 shutdown or a major stock market meltdown, the prospects for a year-end run-up in oil prices is looking extremely likely.
The EIA reported a 4.5 million barrel crude draw and that means U.S. supplies have drained by a stunning 22.5 million barrels in the last three weeks. The draw was even more impressive when you consider that we saw a 2.2 million barrel release from the Strategic Petroleum Reserve (SPR) as companies that used the reserve for emergency storage is taking the oil back because it is needed. Refiners were on fire as refinery utilization rose 1.4 percentage points to 81% of total capacity. On the East Coast, refinery utilization rates climbed to 71.8% of full capacity, the highest since August 2019, as reported by Reuters.
We saw both gasoline and diesel demand jump as well. Gasoline supply fell by 720,00 barrels as demand increased by 290,000 barrels a day to 8.883 million barrels a day. Distillate supplies thought soft in the complex, saw a surprisingly significant drop of 2.6 million barrels in supply. Distillate demand increased by 456,000 barrels week over week. One negative was a pullback in jet fuel demand, which is the reason that the IEA is reducing their demand outlook for overall fuels.
The typically negative International Energy Agency (IEA) revised down 2021 crude oil demand estimate by 240,000 bpd to 97.1 mln bpd mainly due to concerns about a second-wave of COVID and a darkening outlook of jet travel. < BTW IEA does have a long history of under-estimating demand. - Dan.
“The outlook for jet fuel demand has worsened in recent weeks as the coronavirus has spread more widely.” Still, they said:
“Our balances show that in June demand exceeded supply, and for the rest of the year there is an implied stock draw. However, ongoing uncertainty around demand caused by Covid-19 and the possibility of higher output means that the oil market’s re-balancing remains delicate.” That outlook is weighing a bit on markets but remember, the IEA typically underestimates demand.
We get the EIA natural gas report today, and we are expecting a 50 BCF build in supply. In the big picture, low natural gas prices are creating increasing demand. The EIA reported that more power generation from natural gas in the first half of 2020 than in the first half of 2019. That means that cleaner burning gas is replacing coal. The EIA says that natural gas-fired generation in the lower 48 states increased nearly 55,000 gigawatt hours (GWh), or 9%, in the first half of 2020 compared with the first half of 2019. Natural gas was the fastest-growing source of electric power generation, according to data from the U.S. Energy Information Administration’s (EIA) Hourly Electric Grid Monitor. The increase in a natural gas-fired generation was the result of recent low prices and natural gas-fired power capacity additions, despite a 5% decline in total electricity generation. The decrease in electricity consumption resulted from reduced business activity as a result of COVID-19 mitigation efforts. Natural gas-fired generation from electric power plants reached record-high levels on July 28 as summertime heat began reaching its seasonal peak.
By Phil Flynn Aug 13, 2020 08:19AM ET
Are you ready to play the drain game? Demand is rising and supplies are falling. That will help continue the bull market in crude oil. The Energy Information Administration (EIA), in its weekly report said that “U.S. oil supplies are draining fast because of falling production and lower imports and a significant rebound in oil demand. Total demand in the U.S. spiked by 1.2 million barrels a day to 19.37 million barrels the best reading post-COVID."
Crude supplies had the largest three-week drop in history in the all-important Gulf Coast as the U.S. is feeling the impact of the OPEC-Plus production cuts. The drain in U.S. oil stocks may go global as International Energy Agency (IEA) said that global oil demand exceeded supply in June and that would imply that global oil stocks will drawdown for the rest of the year. So barring any major setbacks due to a second wave COVID 19 shutdown or a major stock market meltdown, the prospects for a year-end run-up in oil prices is looking extremely likely.
The EIA reported a 4.5 million barrel crude draw and that means U.S. supplies have drained by a stunning 22.5 million barrels in the last three weeks. The draw was even more impressive when you consider that we saw a 2.2 million barrel release from the Strategic Petroleum Reserve (SPR) as companies that used the reserve for emergency storage is taking the oil back because it is needed. Refiners were on fire as refinery utilization rose 1.4 percentage points to 81% of total capacity. On the East Coast, refinery utilization rates climbed to 71.8% of full capacity, the highest since August 2019, as reported by Reuters.
We saw both gasoline and diesel demand jump as well. Gasoline supply fell by 720,00 barrels as demand increased by 290,000 barrels a day to 8.883 million barrels a day. Distillate supplies thought soft in the complex, saw a surprisingly significant drop of 2.6 million barrels in supply. Distillate demand increased by 456,000 barrels week over week. One negative was a pullback in jet fuel demand, which is the reason that the IEA is reducing their demand outlook for overall fuels.
The typically negative International Energy Agency (IEA) revised down 2021 crude oil demand estimate by 240,000 bpd to 97.1 mln bpd mainly due to concerns about a second-wave of COVID and a darkening outlook of jet travel. < BTW IEA does have a long history of under-estimating demand. - Dan.
“The outlook for jet fuel demand has worsened in recent weeks as the coronavirus has spread more widely.” Still, they said:
“Our balances show that in June demand exceeded supply, and for the rest of the year there is an implied stock draw. However, ongoing uncertainty around demand caused by Covid-19 and the possibility of higher output means that the oil market’s re-balancing remains delicate.” That outlook is weighing a bit on markets but remember, the IEA typically underestimates demand.
We get the EIA natural gas report today, and we are expecting a 50 BCF build in supply. In the big picture, low natural gas prices are creating increasing demand. The EIA reported that more power generation from natural gas in the first half of 2020 than in the first half of 2019. That means that cleaner burning gas is replacing coal. The EIA says that natural gas-fired generation in the lower 48 states increased nearly 55,000 gigawatt hours (GWh), or 9%, in the first half of 2020 compared with the first half of 2019. Natural gas was the fastest-growing source of electric power generation, according to data from the U.S. Energy Information Administration’s (EIA) Hourly Electric Grid Monitor. The increase in a natural gas-fired generation was the result of recent low prices and natural gas-fired power capacity additions, despite a 5% decline in total electricity generation. The decrease in electricity consumption resulted from reduced business activity as a result of COVID-19 mitigation efforts. Natural gas-fired generation from electric power plants reached record-high levels on July 28 as summertime heat began reaching its seasonal peak.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group