Expect Further Tightness
This week I thought it would be a good idea to highlight some of the information provided by HFI research on oil. This is just a mid-month update, so the actual figures might still change. If crude exports for the first half of the month are this low, the second half needs to show a marked increase to balance things out.
Data from Kpler indicates a noticeable decrease in crude exports from OPEC+ during the first 15 days of August.
A large portion of this decline stems from Russia.
Is this decline sustainable? Several aspects need to be considered. How much of Russia’s crude export goes to sanction-compliant buyers and how much does not? In July, China and India received about 2.6 million b/d out of the total 4.5 million b/d, leaving around 1.9 million b/d potentially affected. Given the scarcity in sour crude, the Urals differential to Brent has decreased significantly.
With the price cap at $60/bbl, the drop in crude exports might be due to prices exceeding this threshold. Additionally, reports suggest that Russia is now focusing more on crude exports. Could volumes stabilize around the 4.3 million b/d mark? It’s possible. This may lead to consistently lower OPEC+ crude exports.
Saudi Arabia’s drop in crude export this month follows expected trends. We had initially projected Saudi crude exports would reduce to around 5.8 million b/d after the 1 million b/d voluntary cut. This seems to be happening.
With an additional cut of 1 million b/d expected in September, the global “oil-on-water” figures are likely to decrease further. And if Russia’s exports remain below 4.5 million b/d, it might push oil prices up.
In the coming weeks, oil-on-water is expected to decline significantly. If current trends continue, the combined export cuts by Saudi and Russia over the next 45 days could reduce the market by 67.5 million bbls.
This trajectory could lead us to the lowest oil-on-water levels seen in the last five years. Coupled with our previous discussions on strong refining margins, the market might tighten, leading to rising oil prices.
Economics 101 – Supply & Demand
Challenging the strategies of the Saudis and the Russians might not be advisable. Their dedication to increasing oil prices by reducing supplies is evident in the export data. Consequently, the oil market could tighten even more in the upcoming weeks.
It’s simply economics, those fight it can get ‘ouchgin’.
See you falks next week!