Here's S&P Global Platts, the leading independent provider of information, benchmark prices and analytics for the energy and commodities sectors, take on supply and demand.
The oil market is likely to tighten further in the second half of the year due to further supply restraints and relatively healthy demand, with IMO 2020 potentially pushing Brent crude toward $80/b by end-2019.
S&P Global Platts Analytics believes the market is relatively tight in terms of the supply and demand balance and that it’s likely to be only a matter of time before that is reflected in global oil prices.
“The market is weak today because you have the macroeconomic environment but you also have the fact you have a record amount of refinery shutdowns in May and spilling over to June partly because of Asia refinery shutdowns but also 200,000 b/d of lost refinery throughput as a consequence of Druzhba,” the head of Platts Analytics’ Chris Midgley said at a briefing referring to the ongoing disruption of Russian crude exports via the key pipeline network to Europe.
However, the logic of Brent crude trading just above $60/b was thrown into question, with funds reluctant to get on to the long side of the market and he indicated there was strong support at that $60 level.
“The fundamentals are supportive of [higher prices] but we have seen very little acknowledgement of fundamentals and a very wide traded range,” he added, noting on the demand side that for the global economy “the signals aren’t that bad.”
While worries around the global economy were getting more headlines, Midgley pointed to reasonably solid China and India demand. The US has been holding up well thanks to infrastructure spending, with the US Federal Reserve now more likely to cut interest rates that will also help support emerging economies.
Platts Analytics sees global economic growth of around 3.3% in 2019 and oil demand growth of 1.36 million b/d, playing down macroeconomic fears and the impact of the trade disputes the US has been engaged in with Mexico and China.
Moreover, the refinery demand drop off for maintenance in May and June has masked the crude demand picture.
“The second half has strong demand of 4-5 million b/d from refineries coming back from maintenance, then a spike in refinery runs at the end of the year partly related to IMO 2020,” said Midgley,
The bullish oil demand case is made stronger “because you also have extra demand driven by IMO and you should see a small premium on sweeter grades of crude, and we are talking Brent and WTI, that could be somewhere in the range of $3-6” to the price. New rules around fuel specifications that will see the majority of shippers switch to cleaner marine fuel, known as IMO 2020, will see refiners needing lighter sweet crudes in a bid to produce more middle distillates and creating extra demand.
What’s your take on the current supply Vs demand situation and outlook?
IMO the current oil market is pretty well balanced. I base this on the IEA’s official global supply and demand figures for Q1 2019, which report:
Total Global Supply in Q1 averaged 99.83 million barrels per day
Total Global Demand in Q1 averaged 99.08 million barrels per day
Giving a demand deficit of 750,000 barrels per day. Which may sound a lot but in global oil terms is a drop in the big black ocean of oil out there and only 0.76 percent of overall supply.
Looking forward, excusing the recent headlines “IEA cut global demand growth for second consecutive month” the IEA are still forecasting demand to grow by 1.2 million barrels per day in 2019 and 1.4 million barrels per day in 2020.
On the supply side they are forecasting supply growth in 2019 of 1.9 million barrels per day and 2.3 million barrels per day in 2020. So, on current forecasts the IEA are forecasting 2019 exit supply and demand of:
Global Supply around 101.82 million barrels per day
Global Demand in Q1 averaged 100.44 million barrels per day
Which would result in a demand deficit around 1.38 million barrels per day. Again, may sound a lot and make good headlines but in global oil terms it is still a small drop in the big black ocean at only 1.36 percent of overall supply.
For me once I look beyond the scaremongering and dramatic headlines I see a global supply demand outlook that even with the IEA taking into account forecast global slow down, trade wars, forecast growth in US shale production and expected new projects coming online is still pretty well balanced.
My bullishness comes from the fact I fully expect the demand side to grow further when the Donald agrees the trade deal with China and I believe the supply growth forecast will reduce due to the US shale oil bottlenecks being experienced in the US.
Thats my take. Whats Yours?
PS Jay and DBNO et all.Please do give your point of view. Contrarian outlooks are good.. But try to substantiate them with some facts please. You really are starting to sound like a couple of spoiled brats who think they will get what they want if they simply keep shouting and hoping long enough.
Jay, I'm not going to get into a debate regarding the use of the word deficit. LOL
Its clear you are basing your target price and outlook on nothing more than the fact that the SP has been at 55p before and the American led investment are press pushing the bear market theory.
Only saving grace is that as you don't have enough belief in the theory to short oil or oil stocks you will not get burned with the rest of the misinformed sheep who actually did have the b@lls to follow through on their instincts.
I honestly don't like seeing any investor or trader lose money, long or short.
Jay, deficit can go either way, supply deficit, demand deficit.
PS. It was a rhetorical question. I knew the answer before I asked. I was just trying to gauge if there was any substance to your never ending claims that POO and PMO are going down.
Obviously not.
GL
Personally don't think this will see 55p again this year but good luck to you. If it does I will average down. I have taken a few positions in oil Co's but do still have a hedge in some Gold Co's. Worked well for me in the past.
Out of interest what is the current global supply / demand deficit?
Jay, look beyond the headlines. Dig a little deeper into the facts. They are all there. For example, how much Crude and other oil products so the US imports and export each week. Are they net importers or exports. How does this effect the global market.
Easy to report a build in oil reserves if your buying it in and easy for the press to jump on the headline "EIA reports another unexpected build" when in fact the US production didn't even keep up with US demand that week. More to it than meets the eye and IMO the uneducated traders out there will get burned badly.
IMO, anyone shorting oil stocks must be mad. If you look beyond the Fake News, inventory builds etc. etc. supply and demand is pretty balanced at the moment.
IMO, it won't take much for the supply side to be disrupted, as the incident in Strait of Hormuz shows. Any meaningful supply disruptions will see shorters burn bad.
I know it would have been unthinkable a few years ago but I see the Russian influence on Saudi growing and the US influence waining.
As you say Oil is Saudis only saving grace and America is not playing ball with POO. The OPEC+ deal, increasing arms trade, Arctic LNG 2 etc. etc.
Makes you wonder why Russia was so keen to make sure The Donald got into power.
From oil price.com
Oil inching higher on rig count data
The the number of active oil and gas rigs in the United States fell again this week according to Baker Hughes, as the overall rig count reaches the lowest point since February 2018.
The total number of active oil and gas drilling rigs in the United States fell by 6 according to the report, with the number of active oil rigs falling by 1 to reach 788 and the number of gas rigs decreasing by 5 to reach 181.
Agree on the quality of oil from Canada and US. But personally feel the Saudis are moving away from the US, their needs are no longer aligned. Over the past few years they have been moving closer and closer to Russia. Their needs are simply more aligned.
Took some more ENQ, PMO and TLW today. Got a good feeling about POO and hope to do well.
GLA
DBNO what do you base your predictions on?
I think Brent is going to hold $62 and build on it next week. Took some more here, ENQ and TLW today so hope I'm right.
GLA
MOSCOW (Reuters) - OPEC and other producers including Russia are in final talks for an agreement, that may be signed in early July, to cooperate on oil supplies on a long-term basis, Japan's Nikkei reported, citing Russian energy minister Alexander Novak.
Novak also told the Nikkei that discussions with OPEC on moving the date of the meeting to early July from the originally-planned dates of June 25-26 were nearly finalised.
The Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers have since Jan. 1 implemented a deal to cut output by 1.2 million barrels per day to support prices.
OPEC on Thursday cut its forecast for growth in global oil demand due to trade disputes and pointed to the risk of a further reduction, building a case for supply restraint through the rest of 2019.
OPEC said, in a monthly report published on Thursday, that world oil demand would rise by 1.14 million barrels per day (bpd) this year, 70,000 bpd less than previously expected.
For me this is going onwards and upwards from here. Outlook for June? Zama appraisal results, OPEC+ Extend cuts and G20 agreement between US and China. Throw in some tension in the Middle East and who knows where POO and PMO will go.
To overt for the US to be involved. Saudi and American interests are no longer aligned. Saudis new allies are a lot more willing to use force in plain site achieve their objectives.
As per his earlier post DBNOs basing these predictions on Fibonacci mubo jumbo. How long will it take Maybe the tea leaves can tell us.
It's certainly testing the $60 mark. Hope it close above it.
I would sell Zama and farm out Sea Lion. The income would fast forward debt reduction and SP at hyper speed.
Solan is really no good for leasing out capacity to other operators due to the export constraints on n the sub sea storage tank design. Just need to drill a couple of new wells and get the place functioning as it should.
PS WTI has very little to do with PMO