BAKU, Azerbaijan, June 29
By Leman Zeynalova – Trend:
July is likely to see stock draws in crude oil and major products, Trend reports referring to the US JP Morgan Bank.
“Our model suggests that while demand in June will likely average 12 mbd y/y lower, supply declines will match it, indicating that global supply and demand have effectively been rebalanced. Our model also suggests that starting from July, stock draws in crude oil and major products will likely commence, drawing 370 mb of stocks over the next six months,” reads the report released by JP Morgan.
The bank believes that despite improved demand in key markets like China and the US, the sheer scale of inventory overhang—for both crude and products—remains a major concern.
“Our supply and demand estimates imply an unprecedented 1,460 million barrels (9.6 mbd) of oil were put in storage from January through May. Yet, observed oil inventory increases have only amounted to less than half this number, raising the possibility that our S&D assumptions could be miscalibrated. More specifically either stocks have simply not appeared in the system yet or the demand impact of the COVID-19 pandemic was much smaller than our estimates or supply losses were much greater, or some combination of all three,” reads the report.
To square this inconsistency and to cross-check our global oil balances JP Morgan introduces a more detailed Global Crude Oil and Product Balance.
“The balance is derived from our assessment of production, refinery runs and direct crude burn suggests that out of the total 1,460 mb of oil inventory increase ytd through May, 930 mb of crude oil were likely accumulated with the remaining 530 mb being stored as products. This compares with the IEA’s estimate of 1,529 mb of total oil surplus in 1H20 split relatively proportionally between crude (774 mb) and products (755 mb). As we detail below, after adjusting for the incomplete availability of storage data, we can account for at least 700 mb of relatively ‘visible' crude oil inventory and get to a rough estimate of about 520 mb in products, loosely tying our balances to the real world inventory overhang,” said the report.
“Given that crude oil inventories are typically locked in cash and carry trades (with collateralized financing used to lease storage and buy crude, which is then hedged forward on a 3-6 month horizon) and that we see the market tightening only by about 400 mb between June and December, a sizeable part of this inventory will have to be rolled forward, likely depressing forward prices.”
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