Navarik Market Update

June 15, 2017


Flatter Chinese oil demand, in part due to national clean energy policies, has hit the consumption capacity of the Asia-Pacific crude market even as Chinese imports surge. Likewise, new federal regulations designed to curb exports from teapot refineries has also reduced outflow channels. After being on the back-burner of the global market’s attention, both of these trends appear to have led to the development of a glut in the global energy market’s single biggest driver of demand growth.

The spread between the prices on contracts for prompt and future delivery of oil widened, creating Contango. As a result, tankers are idling full outside Singapore and in the Atlantic. This is bad news for OPEC, which as little as a week ago might have had a case their production cuts were working. But with barrels backing up in storage, buyers now have more market power to ask for discounts – not only when buying barrels now, but also later, if and when this floating storage begins to be drawn down.

Add to this a potential faster-than-expected recovery in Nigeria and Libya (exempted from cuts), a potential breakdown in compliance stemming from the Qatar blockade, and record exports out of the US and it appears low-cost crude may be around longer than expected. Moreover, if China transitions away from oil as fast as the government has said it intends (and the International Energy Agency expects), prepare for it to last even longer than that.

Further Reading:
gCaptain, June 13, 2017
Reuters, Jun 8 2017
International Energy Agency, 16 May 2017
Reuters, April 11 2017

 

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Colin McCann is an Oil & Gas analyst with Navarik Corporation. The Navarik Data Products team analyzes Navarik's proprietary data sets and external sources to provide insights into the oil & gas shipping market. The resulting analysis enables physical and paper traders to see ship movements across the barrel before anyone else in the market.

To reach a Navarik Oil & Gas analyst email tradeflow@navarik.com. To reach Colin directly call 778-327-6917 or email cmccann@navarik.com.

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