Navarik Market Update

July 13, 2017


Global oil prices remain low worldwide, in part due to high production, but also because producers have little market power to raise prices when storage of crude and/or refined products is high and consumer demand is too low to draw this down. This week, this midstream blockage showed signs of easing after European and US product stockpiles fell even though refineries were increasing their intake of crude. This should raise price floors somewhat, as it points towards demand easing the global glut of oil and oil products.

However, other trends are emerging in Asia which muddy the water further. Newly constructed commercial storage tanks in Zhangjiang, China, continue to fill up to their estimated 8.5 million barrels capacity. A new, even larger underground strategic petroleum reserve (SPR) site in the same area has also yet to come online. Meanwhile, in Japan, Saudi Aramco has announced a 30% (or 2 million barrels) expansion to their storage facility in Okinawa. Because the tanks are owned by JOGMEC (the Japan Oil, Gas, and Metals National Corporation) and leased to Saudi Aramco under an mutually advantageous national-supply agreement, any new Saudi production stored in these as-yet-unbuilt tanks over the coming months would likely be treated as an export from Saudi Arabia when the “true” location of these barrels should conceptually be further upstream.

Put it all together, and although European and US inventory draws may point to a bullish bump in consumer demand globally, the same sentiment should not applied to any additional Asian import data without carefully considering whether the barrels will make it downstream to the same degree.

Further Reading:
Reuters, Jul 11 2017
ZeroHedge, Jul 10 2017
Reuters, Jul 7 2017
Reuters, March 2 2017

 

Figure 1: Saudi Aramco/JOGMEC storage facility

 

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.

A list of current available trade flow reports can be found here.

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