Oil nears the moment of truth

Oil flat today

Oil flat today
I did a video recently where I talk about the importance of watching markets that aren’t moving and aren’t grabbing headlines.
At the moment, that’s oil. WTI is flat today and looks like it will stack up another doji star on the chart. It’s normally one of the most-volatile assets but it’s been stuck in a sub-$5 range since March 18.
I’m a big time oil bull and I have been for many months but this is the kind of chart that makes people on both sides of the trade worried. A break is inevitable and the longer it stays here, the more likely it is to be a violent one.
Platts’ survey today showed OPEC+ is wavering in its compliance and that Iranian and Libyan barrels continue to increase (they’re not subject to quotas). Russia has been particularly lax in compliance.
We’ve got 2 mbpd coming back online through July and the WHO is warning about rising covid cases and deaths globally.
On the flipside, the US reopening is looking impressive in almost every way. Gasoline and travel demand is way ahead of where almost anyone thought it would be and will keep getting better. At these levels of production, global inventories are being drawn down.
So there are two trades (from my perspective):
  1. Hang onto longs and hope the trend continues
  2. Cut longs and hope to buy back cheaper
If it’s #2, the question is where to buy? The area around $52-54 looks attractive but a flush to $48 would be the real pain trade and a magnificent level to buy oil or oil companies.

Shell (world’s biggest fuel retailer) indicator suggests fuel demand recovery has remained slow

An ICYMI on the still-slow recovery from coronavirus impacts across much of the globe:

  • Shell expects its fuel sales to fall or at best be broadly steady for the first quarter
  • said it saw refined oil product sales at 3.7-4.7 million barrels per day (bpd) for the first quarter compared with just under 4.8 million bpd in the last quarter of 2020. It had previously forecast sales of 4-5 million bpd.
Info via Reuters, was posted overnight ICYMI.
An ICYMI on the still-slow recovery from coronavirus impacts across much of the globe:

Crude oil inventories -3.522M vs est -1.436M

Weekly crude oil inventory

  • crude oil inventories -3.522m vs -1.436m estimate
  • gasoline inventories +4.044M vs -0.221M estimate
  • distillates, +1.452K versus +0.486M estimate
  • Cushing OK crude, -0.735M
  • crude oil implied demand 17667 versus 17370 last week
  • gasoline implied demand 9573.3 versus 9431.1 last week
  • distillates implied demand 4756.6 versus 4815.9 last week
WTI crude oil futures trading down $0.31 among 0.51% of $59.02

EIA raises 2021 world oil demand to 5.5M. Up 180K

EIA demand and supply forecasts

  • 2021 world oil demand to increase 180K to 5.5M
  • 2022 world oil demand to decrease by 180K to 3.65M BPD
  • Crude oil output in 2021 to fall 270K to 11.04M (vs 160K BPD decline)
  • Crude oil output in 2022 to increase by 820K to 11.86M, unchanged from precious estimate.
The price of crude oil today is up about $1.09 or 1.9% at 59.74.  The high as reached $60.90. The low was at $58.62.

OPEC debates gradual increases in May, June and July

Slow return of oil to the market

OPEC+ is debating a gradual increase of 350K bpd in May, 350K bpd in June and 400K bpd in July, according to a report.
WTI touched the lows of the day at $58.91 shortly before this as the Saudi effort towards a two-month rollover failed and talk of a Saudis reversing their 1 mbpd voluntary cut did the rounds.
The market likes the sound of this slow increase in production but that will also depend on what Saudi Arabia does afterwards with the 1 mbpd voluntary cut.
Update: Another report is saying Saudi Arabia has proposed bringing back 250K bpd of its production in May, the same in June and the final 500 kbpd in July.

US weekly oil inventories -876K vs -1500K expected

Weekly US oil inventory data from the EIA

  • Prior was +1912K
  • Gasoline -1735K vs +700K expected
  • Distillates +2542K vs +500K expected
  • Refinery utilization +2.3% vs +1.7% expected
Private inventories released late yesterday but the API:
  • Crude +3910K
  • Gasoline -6012K
  • Distillates +2595K
Tomorrow’s OPEC+ decision is the big driver of crude, which was up 11-cents to $60.66 before this report. It initially popped on the release but quickly came back.

A reminder of the OPEC+ meeting this week – rollover of existing output cuts expected

This will not be news to anyone following along. OPEC+ meeting is on April 1 (JMMC meets the day before)

Market consensus is for another rollover of OPEC production cuts. OPEC (especially Saudi Arabia) have been cautious on the demand recovery and that will not change at this meeting:
  • renewed lockdowns in Europe
  • the US is looking better (accelerating vaccination efforts)
  • on the supply front, there is still plenty and the disruption from the Suez blockage will pass in coming weeks

OPEC+ likely to roll over production – report

OPEC+ is ‘likely’ to make a similar decision to the last meeting on April 1, according to 4 Reuters sources.
They say some had hoped to reverse cuts but more covid and lockdowns are delaying those plans.
The report also notes that Iran is increasing shipments and defying US sanctions.
WTI is at the highs of the day, up $2.92 to $60.72.