WTI and Brent crude start Q2 in fifty dollardom as the market continues to grapple with market rebalancing and OPEC compliance. As the market awaits signs of a tightening market, hark, here are five things to consider in oil markets today:
1) We discussed on CNBC Asia last week how OPEC production cuts are "lumpy", as some countries are complying, while others are not. While Iraq continues to exhibit a lack of discipline, with exports continuing to be strong, UAE appears to be coming into compliance amid maintenance at fields connected to its crude streams of Murban and Das.
As the chart below illustrates, loadings of the two grades have dropped versus February's levels. Murban is leading the charge: after averaging over 900,000 bpd last year and over 1 million barrels per day last month, volumes have dropped below 700,000 bpd in March. Combined, export loadings of the two grades are the lowest since mid-last year:
2) While some are claiming that global floating storage is dropping precipitously (it is tip-toeing lower, but hey), total US oil and product inventories are showing a more constructive picture. Oil inventories may be at a record of 533.9 million barrels, but the rise so far this year is being offset by falling product inventories.
On the aggregate, total inventories are down 23.5 million barrels from their peak at the start of February. One of our key ClipperData themes for the first half of this year was the expectation of product destocking; this appears well underway.
3) As the OPEC production cut deal has made the Dubai-Oman benchmark more expensive on a relative basis, flows from the Americas to Asia have been picking up in recent months, boosted by improving economics. As our ClipperData illustrate below, flows into China are on the rise, led by higher Brazilian volumes. We are also seeing a pick-up in Colombian barrels, as well as US grades increasingly making their way to Chinese shores:
4) Going back to the topic of UAE, we have previously highlighted how some Persian Gulf oil producers may be trying to supplement their lower revenues (due to the OPEC production cut) by refining the crude into petroleum products and exporting that instead. We highlighted how Saudi and UAE gasoline and middle distillates exports have been strong of late as the region exits refinery maintenance.
While UAE is a gasoline exporter, it is also ramping up its gasoline imports after a fire at its Ruwais refinery in January left it short on supplies. The Ruwais refinery has capacity of 800,000 bpd, and is one of the largest refineries in the world. The January fire took half of its capacity offline.
As our ClipperData illustrate below, gasoline imports into the UAE are at their highest in recent years, boosted by arrivals from Southern Asia. Indian volumes have been leading the charge on this front, accounting for half of imports this month - in large part due to a ramp-up in flows from Reliance's Jamnagar refinery.
This trend of higher imports seems set to continue in the coming months, with ADNOC issuing a tender for 2.7 million barrels of gasoline for May and June; a gasoline unit at the Ruwais refinery is set to be off-line until the second half of the year.
5) Finally, PdVSA is negotiating with Russia's Rosneft as it tries to raise cash to make $3 billion of bond payments this month. To avoid default, the state-run oil company appears to be once again pursuing an oil-for-debt deal as it scrambles for cash once more.