We took a brief hiatus from our weekly series Open Insights to update our oil thesis, but we’re now back to looking at the EIA’s Weekly Petroleum Status Report (“WPSR”). This is for the week of February 7, 2020.
EIA reported a crude build of 7.5M barrels, about double the 5-year average. Looking at the year in totality, crude inventories are running about 6.6M barrels below the 5-year average build for this time of year.
Gasoline inventories were essentially flat again for the week, drawing by 95K barrels, whereas distillates declined by 1.9M barrels. Overall products declined by 8M barrels, once again led by distillates and NGLs/propane.
Total crude and products decreased by 1M barrels for the week. This is compared to a 5-year average of +3.4M barrels for the week.
As always, we’ll leave you with some food for thought.
Last week, we discussed the impact of the coronavirus, and undoubtedly, that is still the main concern. For the coming week, however, ceasefire negotiations led by the UN Support Mission in Libya will begin on February 18, so the outage of 1M bpd of Libyan production is at risk of returning if the parties can negotiate a military ceasefire and then turn to a diplomatic resolution (power and economic sharing). Given the various competing interests, we continue to doubt their ability to come to a quick resolution. It’s in the interest of General Haftar and his backers to continue weakening the resolve of the GNA coalition. The UN Security Council’s Wednesday resolution for a “lasting ceasefire” was largely symbolic, particularly given Russia’s abstention (and who does Russia back? General Haftar). Nevertheless, something to monitor.
As for the coronavirus, we’re looking at company restarts. China continues to be effectively locked down, as government mandated and/or self-quarantining continues. It’s not that the whole country is frozen, but given the interwoven supply chains (smaller operators supplying key components to larger manufacturers), the chain is only strong as its weakest link. We’re looking at supply chains this week and the next to see if there’s any movement/momentum. The auto industry and consumer electronic industries are critical (plastics and NGL demand).
Interestingly, global crude inventory balances continue to be flat for now (satellite). What we’re seeing is that European draws are being offset by Chinese builds. From an OECD standpoint, you could see OECD inventories fall, but that’s a bit illusory, as Chinese inventories would build and eventually Chinese refiners would need to work off that excess build (thus, demand would fall once refiners return from their voluntary throughput reductions).
Lastly, OPEC. An emergency meeting appears to be off the table for now, so the question for early March is whether or not the discussed 600K bpd of cuts and extension is still on the table (we think so). Moreover, will the Saudis cut more?
Weekly global inventory balances (per weekly data (i.e., not satellite)).
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