Economic Growth Absorbs Opec Shock

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Oil prices were barely changed over the week as hopes of a strong global economic recovery post Covid-19 helped offset planned increases in Opec-plus production. International benchmark Brent ended the week down 34¢ per barrel at $63.20/bbl, while US price-pin West Texas Intermediate finished 44¢/bbl higher at $59.60/bbl. Markets have been volatile since a brutal session on Mar. 18 in which oil prices tanked by 7%, and observers say they are likely to remain choppy as traders cope with oversupply fears and stubborn outbreaks of Covid-19 in many parts of the world. Nonetheless, in its latest global economic outlook report published Apr. 6, the International Monetary Fund (IMF) forecast that global GDP would grow by 6% in 2021, up from 5.5% in its previous assessment in January. The US will see an expansion of 6.4% due to massive stimulus programs, and China’s economy will grow 8.4%, the IMF said. Opec-plus persisted with its "expect the unexpected" approach to oil market management at its meeting last Thursday, deciding to raise output substantially over three months from May 1, and defying market expectations of a rollover. Some 2.1 million barrels per day of production will return to the market by July with the producer group set to gradually ease its production cuts by 1.14 million b/d over the three months from May at the same time that Saudi Arabia will roll back its voluntary cut of 1 million b/d. A rapprochement between the US and Iran, who are set to restart nuclear talks, could also put more crude onto the market. European jet fuel is trading at a 2½-month high versus underlying ICE low-sulfur gasoil (LSGO) futures in Europe despite diminishing hopes of a strong rebound in air travel this summer. The UK is set to allow international travel from May 17 as high Covid-19 vaccination rates and falling case numbers allow lockdown measures to be gradually unwound. A traffic light system will allow unrestricted return travel from green countries deemed to be safe, while other amber and red countries will require home or hotel quarantine depending on the level of risk which will be continually reviewed. Unimpressed by the UK government's plans, budget airline Jet2 has chosen to extend its suspension of service to the end of June. The rest of Europe is likely to toughen travel restrictions amid a rising third wave of Covid-19. Vaccination rates are just over 14% across the EU versus 47% in the UK. European flight numbers rose slightly over the Easter holiday weekend but were back to barely a third of pre-pandemic levels by Apr. 8, according to Eurocontrol. The bulk of current air traffic is cargo not passenger traffic. Jet cargoes were pegged at a $23.25 per metric ton premium to the soon-to-expire April LSGO contract in Northwest Europe at Thursday’s close, up from $21/ton a week ago, while Rotterdam barges were unchanged at a $21/ton premium. Brokers put the stronger numbers down to a gap in imports during the first half of April -- partly the result of the Suez Canal blockage -- rather than any uptick in regional airline fuel demand. The drop in arrivals has already triggered stockdraws. Jet tanks in Amsterdam-Rotterdam-Antwerp fell to a 17-week low of 890,000 tons on Apr. 1, according to Insights Global, before rising only slightly to 904,000 tons by Apr. 8. That is still 46.5% above where they were this time last year but down from a 144% surplus last month. Just one jet cargo changed hands in the market-on-close pricing window, the first in over two weeks. French oil company Total sold 30,000 tons to European major BP into Le Havre Apr. 18-22 at flat to the Platts c.i.f. cargo mean in Thursday’s window. Some 11 barges or 37,200 tons changed hands during the week with BP buying seven of them. US jet fuel markets entered a calmer zone following recent gyrations. Low-sulfur diesel futures closed at $1.81/gallon on Thursday, keeping outright jet quotes in the $1.62-$1.77 range. US prices still command a premium over levels in Europe and Asia, even as jet spreads show steep discounts versus diesel futures. Gulf Coast differentials were assessed at 19¢/gallon below the May screen. New York Harbor barrels traded at 15¢ discount. The 4¢/gallon spread between the regions barely covers the cost of moving jet fuel up the Colonial pipeline into New York Harbor. Imports flowed into US West Coast ports at a 93,000 b/d rate as traders took advantage of the arbitrage across the Pacific. Consumption averaged 1.2 million b/d over the last four weeks, falling 20% short of year-earlier rates when travel restrictions were first imposed. Higher passenger numbers through US airports are boosting load factors on airplanes. Strong bookings are encouraging airlines to recall pilots and staff in preparation for a rebound in summer travel. The Centers for Disease Control affirmed that air travel was safe for vaccinated people, which should unleash pent-up demand. Jet production reached 1.2 million b/d as utilization rates climbed to 84% of capacity. Jet fuel stocks fell by 700,000 barrels to 38.3 million bbl with higher levels on the East Coast offsetting a plunge of more than 1 million bbl on the Gulf Coast. Asian jet markets held steady as rising air traffic lifted prompt jet demand. Benchmark Singapore spot price differentials dipped by just 1¢/bbl to a discount of 61¢/bbl to Singapore quotes on Apr. 8. Two newly built very large crude carriers that had been floating around Singapore for three to four months have begun to move or discharge their jet cargoes. The Bahla chartered by Vitol carrying 254,000 tons of jet began discharging some volumes via ship-to-ship transfer in the waters near Singapore and southern Malaysia, according to data intelligence company Kpler. Vitol had sold jet through the Singapore trading window for seven weeks in a row. The Sur chartered by Trafigura carrying 129,000 tons of jet and 98,000 tons of gasoil recently indicated Pengerang in southern Malaysia as a destination, Kpler added. Arbitrage jet flows from East of Suez to west of the canal dropped by 91,000 tons to 89,000 tons in the week starting Apr. 5. Two medium range-sized tankers loaded the volumes from South Korea and India and are expected to discharge their volumes in Europe and the US West Coast, Alaska or Hawaii from Apr. 23 through May 15, Kpler noted. Scheduled airline capacity in the week of Apr. 5 rose by 0.9% in Northeast Asia, grew by 4.3% in Southeast Asia and increased by 5% in South Asia, according to aviation data analysis firm OAG. European Quarterly Jet Fuel Swaps Quotes (Bid/Offer Range in $/ton, c.i.f. NWE) Quarter Chg. Apr 9 Apr 1 Q2'21 0.50 526.25 - 527.25 525.75 - 526.75 Q3'21 -1.50 533.25 - 534.25 534.75 - 535.75 Q4'21 -2.00 538.00 - 539.50 540.25 - 541.25 Q1'22 -2.75 541.75 - 543.25 544.75 - 545.75 Prices are live for midday. Source: FCStone

Oil Demand, Oil Inventories, Oil Supply, Crude Oil
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