Mar 28, 2021

Thomas Thornton



The big news continues to be the Suez Canal blockage by the Ever Given, which I wrote in a separate note on Wednesday. So far there are 321 ships piled up waiting to pass through the canal, at a cost of $9.6 billion per day in lost traffic. Everything from furniture to grains, oil, and gas, to base metals, have been affected. There is still no exact time frame for when they will be able to float the ship and right it. By Friday, this was giving a lift to the commodities sectors, and will likely continue to do so next week.

As far as oil goes:

Per KPLER: There are currently 10 vessels waiting at the entryway of the Suez Canal, and one vessel Delta Hellas waiting in the middle of the Red Sea. In total, the waiting vessels have a combined volume of 9.8mbbls of oil. Marlin Santorini, chartered by Mercuria, has diverted and is observed to be sailing via Cape of Good Hope instead. 3 other vessels: Kriti Vigor, Fairway, and Apache remain on course for Suez.

Per TANKERTRACKERS: As congestion grows in the north and south anchorages of the Suez Canal, we see crude oil accumulating at a rate of 1 million barrels per day on average since the EVER GIVEN (9811000) containership got stuck sideways only 10km into the canal from the Red Sea anchorage of Suez. North anchorage: 7.2M barrels of crude from Russia (50%), Rotterdam storage (24%), Libya (16%). South anchorage: 6.1M barrels from Saudi Arabia (38%), Oman (23%), Malaysia (18%), Yemen (8%).


Yes, that is right, it is time again for another OPEC+ meeting to discuss May allotments.  The meeting is April 1-2. With new lock-downs in Europe, the consensus seems to be that they will be rolling over the current cuts and Saudi Arabia will roll its additional 1M barrel elective cut for another month. I think Russia and Kazakhstan will as for raises again, but they will be minimal. As usual, there will be lots of chatter and headlines before the actual decision is made, likely we see oil continue to consolidate this week, barring any unforeseen trouble in the Middle East.


I know everyone is looking at this H&S, but to be honest, it is one of the least reliable patterns. I still believe oil will be bought for under $60. If for some reason we see 50-52.50, consider it a gift.



Most refineries are finally back online following the Texas Polar Vortex debacle. We are also in refinery maintenance season, which will last through April, then we should see refinery utilization really start to pick up.


Dallas Federal Reserve survey was out this week.

“Activity in the oil and gas sector expanded strongly in first quarter 2021, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—soared from 18.5 in the fourth quarter to 53.6 in first-quarter 2021, reaching its highest reading in the survey’s five-year history. Exploration and production (E&P) and oilfield services firms both experienced strong expansion inactivity.

Oil and gas production increased, according to E&P executives. The oil production index rose from 1.0 in the fourth quarter to 16.3 in the first quarter. Likewise, the natural gas production index turned positive and increased 18 points to 15.9.

The index for capital expenditures increased from 12.5 to 31.0, indicating an acceleration in capital spending among E&P firms. Additionally, the index for the expected level of capital expenditures next year came in at 49.5, signaling firms have increased their capital spending plans for 2022.

Oilfield services firms reported improvement in all indicators. The equipment utilization index surged, jumping 57 points to 63.2 in the first quarter. Operating margins improved, with the index moving into positive territory—increasing from -31.9 to 14.0. The index of prices received for services also turned positive, jumping from -29.7 to 20.0. However, the index for input costs also rose notably—from -4.3 to 36.0—suggesting mounting cost pressures.

After seven consecutive negative readings that indicated contracting payrolls, the aggregate employment index turned positive, rising from -11.7 to 8.4. Employment growth was driven primarily by oilfield services firms. The employment index was 23.5 for services firms versus 1.0 for E&P firms. The employee hours index moved into positive territory, rising from -6.9 to 22.8. The aggregate wages and benefits index also turned positive—from -12.4 to 14.8.

Six-month outlooks improved notably, with the index rising from 21.6 last quarter to 70.6—the highest reading in the survey’s five-year history. Additionally, firms noted less uncertainty around their outlook this quarter than last; the aggregate uncertainty index fell eight points to -22.2. This is the lowest reading for the uncertainty index since its inception in the first quarter of 2017.

On average, respondents expect a West Texas Intermediate (WTI) oil price of $61 per barrel by year-end 2021; responses ranged from $45 to $85 per barrel. Survey participants expect Henry Hub natural gas prices of $2.80 per million British thermal units (MMBtu) at year-end. For reference, WTI spot prices averaged $64 per barrel during the survey collection period, and Henry Hub spot prices averaged $2.59 per MMBtu.”

Source: Dallas Fed Survey
Source: Dallas Fed Survey
Source: Dallas Fed Survey
Source: Dallas Fed Survey


China’s deliveries of North Sea crude are expected to hit a record this month, helping to offset tepid demand from European markets that remain subdued by COVID-19 lockdowns, according to market sources and an S&P Global Platts analysis of shipping data.

The world’s largest importer of oil is expected to receive almost 1.2 million b/d of medium gravity crude from the North Sea in March, up from around 540,000 b/d a year earlier, data from intelligence firm Kpler shows.

The bulk of these shipments — which now account for about a tenth of total imports — includes cargoes of the UK’s Forties and Norway’s Johan Sverdrup, both fitting the preferred diets of China’s industrial refineries. China also imported some cargoes of Ekofisk and Grane in March, according to trading sources.

The March surge in North Sea cargoes — a record based on Kpler data back to 2012 — underscores the growing influence of Beijing in the aging basin’s future. Over the last decade, Unipec — the trading arm of state-owned Sinopec — has also emerged as a key player in the North Sea spot crude market. -PLATTS

April is refinery maintenance season for China, so we may see a slight slowdown in volumes, something I will be keeping an eye on.


Yesterday (Saturday) China and Iran signed a $400B 25 year cooperation agreement in Tehran.

“Relations between the two countries have now reached the level of strategic partnership and China seeks to comprehensively improve relations with Iran,” Chinese Foreign Minister Wang Yi said.

Aside from boosting China’s regional presence in the Middle East, most of this is likely to go to oil purchases, which works out to be about 1M barrels a day at $43 dollars a barrel….quite the nice discount for China.

Since China is already buying most of Iran’s oil currently, this will not have that large effect on global oil flows. This seems more of a geopolitical strategy play.


Last week, the UK was considering a ban on new E&P in the North Sea, which I stated would not happen. It did not in fact. “The £16bn NorthSea deal will protect thousands of oil and gas jobs. Under the deal, there will not be a ban on exploration activity but the North Sea licensing rounds will be subjected to greater scrutiny.”


Air travel is climbing steadily and is more than halfway back to normal in most parts of the world, boosting jet fuel demand — apart from Europe, where activity remains stubbornly low. China, with its large domestic market, has shown the fastest recovery, with seat capacity nudging above 2019 levels in the middle of this month, according to OAG Aviation. More recent data for March 22 show the capacity for the whole of the Asia-Pacific region was 27% below 2019 and North America was down 36%. By contrast, Europe lagged all other continental regions with a massive 73% deficit to the year before Covid struck.

Long-distance travel is still heavily impeded in Europe by movement restrictions and a surge in infections in many countries. Delivery delays and temporary suspensions of the Oxford-Astrazeneca Covid-19 vaccine haven’t helped. The region’s airline seat capacity currently doesn’t exceed the combined total for Latin America and the Middle East, whereas two years ago it was close to double. Germany will impose a five-day hard lockdown over Easter. Some regions of France, including Paris, started a new lockdown on Saturday that may last as long as four weeks. Even the U.K., which has had a rapid rollout of vaccinations, won’t allow international holiday travel until May 17 at the earliest

The recovery in air travel within China is no doubt helping boost the Asia-Pacific region’s overall tally while many other countries, including Malaysia and Thailand, are still hampered by movement restrictions and a lack of tourists. READ: Tourism Lull From Thailand to Singapore Damping Oil Demand.

Busy London Roads Road traffic data is showing differences between the U.K. and some other parts of Europe. London, Shanghai, and Beijing were the only places out of 13 cities regularly studied in this weekly monitor that show congestion above 2019 levels, with Tokyo not far behind. A road journey in London at 8 a.m. on Monday that would take an hour on empty roads had 40 extra minutes of congestion, unchanged from a week earlier and 5% more than typical 2019 levels, according to location technology company TomTom NV. Traffic delays in Paris, however, slipped from 40 minutes to 26 minutes within a week, meaning congestion was about 42% less than in 2019, the same percentage as New York.





Qatar Petroleum signs a 10-year deal to supply LNG to China’s Sinopec. Qatar Petroleum (QP), the world’s top liquefied natural gas (LNG) supplier, has signed a long-term agreement to supply LNG to China Petroleum and Chemical Corporation (Sinopec) for several years.

With the new deal, said to be the first in the history of the Chinese firm, Qatar Petroleum will supply two million tonnes of LNG to Sinopec every year for a term of ten years. -Refinativ

Another Middle East alliance for China. Something to watch geopolitically.


Brussels is considering classifying gas as a sustainable technology under its landmark green labeling system. While I completely agree with this, this is an amusing turn of events from their ZERO fossil fuel policy. My guess is that it partly has to do with NordStream2 and partly because it is cheap and efficient energy. This winter, Europe, Germany in particular was plagued with problems from wind and solar sources.

As I have stated many times, natural gas is the best transition energy source, as it is cheap and relatively abundant. This decision solidifies my view.


Mozambique has been plagued with militant insurgents tied to Daesh.

On Wednesday, the Government of Mozambique declared the area within a 25 km perimeter surrounding the Mozambique LNG Project as a special security area. A comprehensive roadmap, including the reinforcement of the security infrastructure and the strengthening of the public security forces, has been defined and implemented, allowing gradual remobilization of the project workforce and the resumption of LNG plant construction activities as well as community development programs carried out by the project. The control of the special security area around the Afungi site remains ensured exclusively by public security forces assigned by the Mozambican Ministries of Defense and Interior, under a Memorandum of Understanding signed in July 2020 between the Government of Mozambique and TEPMA1. The Government of Mozambique is committed that the personnel assigned to the protection of Mozambique LNG shall act according to the Voluntary Principles on Security and Human Rights (VPSHR) and international human rights standards. The Mozambique LNG Project, which is in charge of the security of the construction site itself, does not use the services of any armed private security providers.

By Friday, this all changed.

The town of Palma in northern Mozambique remained under attack from insurgents for a third-day. Residents were trying to flee to safety and most communications were cut off.  International companies were only able to contact their staff in Palma by satellite phone, according to various company representatives. People are hiding in Palma’s Hotel Amarula and an area outside the town where the liquified natural gas project by the France‐based firm, Total is based. Militants were able to seize control of the northern Mozambique town of Palma,

In response, Total said on Saturday that it had postponed the restart of work at a liquified natural gas (LNG) project in Mozambique following an attack on a nearby town this week.

The French energy group said none of the project staff were among the victims of the fighting, linked to an Islamist insurgency in northern Mozambique.


Gazprom said that Nord Stream 2 will be completed this year According to the chairman of the board of directors of the company Viktor Zubkov, the work is done by 90-92%, despite US sanctions.

The Nord Stream 2 project involves the construction of two lines of a gas pipeline with a total capacity of 55 billion cubic meters. m per year from the coast of Russia through the Baltic Sea to Germany. Work was suspended in December 2019 after Swiss Allseas abandoned pipe-laying due to possible US sanctions. But in December 2020, construction resumed. The gas pipeline is currently being laid in the territorial waters of Denmark. -TASS



Joe Biden held his first a press conference this week. Here is what he said about infrastructure:

BIDEN: The next major initiative is ‐‐ and I’ll be announcing it Friday in Pittsburgh in detail ‐‐ is to rebuild the infrastructure both the physical and technological infrastructure of this country so that we can compete and create significant numbers of really good‐paying jobs, really good‐paying jobs. And some of you have been around long enough to know ‐‐ that used to be a great Republican goal and initiative. I still think the majority of the  American people don’t like the fact that we are now ranked, what,  85th in the world in infrastructure. 

I mean, look, the future rests on whether or not we have the best airports, and that can accommodate air travel, ports that you can get in and out quickly so businesses decide. Some of you, when you’re ‐‐ if you were ever local reporters and you found your governor or mayor trying to attract business to your community, what’s the first thing the businesses ask? What’s the closest access  ‐‐ access to an interstate highway? How far am I from a ‐‐ a freight rail? Is the water ‐‐ is the water available? Is enough water available for me to conduct my business? All the things that are related to infrastructure. 

We have somewhere, in terms of infrastructure, we have  ‐‐ we rank 13th globally in infrastructure. China’s investing three times more in infrastructure than the United States is. Bridges ‐‐  more than one-third of our bridges, 231,000 of them need repairs.  Some are physical safety risks or preservation work. One in five miles of our highways and major roads are in poor condition. That’s  186,000 miles of highway. Aviation ‐‐ 20 percent of all flights ‐‐  20 percent of all flights weren’t on time, resulting in 1.5 million hours lost in production. Six‐ to 10 million homes in America still have lead pipes servicing their water lines. We have over 100,000  wellheads that are not capped, leaking methane. What are we doing? 

And by the way, we can put as many pipefitters and miners  (inaudible) to work capping those wells at the same price that they would charge to dig those wells. So I ‐‐ I ‐‐ I just find it frustrating ‐‐ frustrating, talking about… 

The last point I’ll make on the infrastructure, and I apologize for spending more time on it, but ‐‐ is that if you think about it, it’s the place where we will be able to significantly increase American productivity, at the same time providing really good jobs for people. But we can’t build back to what they used to be. We have to build ‐‐ the environments are ‐‐ global warming’s already done significant damage. The roads that used to be above the water level  ‐‐ didn’t have to worry about where the drainage ditch was. Now,  you’ve got to rebuild them three feet higher, because it’s not going to go back to what it was before ‐‐ only get worse unless we stop it. 

There’s so much we can do. Look at all the schools in  America. Most of you live in the Washington area now, but in your hometowns ‐‐ I don’t know where you’re all from ‐‐ how many schools where the kids can’t drink the water out of the fountain? How many schools are still in the position where there’s asbestos? How many schools in America we’re sending our kids to don’t have adequate ventilation? How many schools, buildings, office complexes are wasting billions of barrels of oil over time because they can’t hold in the heat or the air conditioning, cause that’s ‐‐ leaks through the windows that are so porous in the connections (ph)? It’s amazing.  

As plainly as I can say, the long/short of this is: This is A LOT of asphalt (oil), natural gas, copper, steel, lumber, aluminum, concrete, and heavy equipment.

Likely this plan will face headwinds in Congress, but very bullish energy and materials if even part of it passes. (See my September 28th post entitled WOULD A BIDEN WIN SPELL DISASTER FOR ENERGY/MATERIALS SECTOR? For details on his plan)



China’s steel demand to rise despite government push to limit pollution.

The recent price decline of iron ore futures has caused concerns about steel demand in China – the world’s largest steel producer – an investment-driven economic structure ensures that China’s steel demand will grow in 2021, despite government orders to reduce steel output, industry analysts said.

President of the China Metallurgical Industry Planning and Research Institute Li Chuangxin told the Global Times on Monday that the fluctuation in the iron ore price could be triggered by volatile demand for iron ore. However, the pricing of iron ore futures involves many factors including international supply, capital, and others.

“The fluctuation of the price of iron ore futures can’t be analyzed by demand change alone, and, as capital investment still accounts for a large portion of China’s annual GDP, steel demand is very likely to increase as the country has set the GDP growth target at more than 6 percent for 2021,” Li said.

Iron ore continues to consolidate here, overall this chart is still bullish.


Morgan Stanley had some interesting charts for copper and renewables this week. My bullish long-term copper thesis remains intact.


COT on commodities in wk to March 23 showed money managers cut bullish bets on 24 futures contracts to 2.4m lots ($117.8 bn), now down 15% in the past four weeks from the record. Top sales in oil, sugar & wheat with buying concentrated in just soybeans and corn.

Source: SAXO



Global oil stocks vs 31-Dec-19 levels (mb)

Source: Goldman Sachs


Oil product stocks fall to 2019 level as heavy distillates tumble

The total was 17.683 million barrels as of March 22, down 8% from a week earlier and the lowest since Sept. 9, 2019, according to data from the Fujairah Oil Industry Zone released on March 24. Fuel oil and other heavy fuels used for marine bunkers and power generation which make up the heavy distillates stood at 7.115 million barrels as of March 22, the lowest since Dec. 31, 2018, the data showed.

Middle distillate stockpiles came to 3.655 million barrels as of March 22, a two-week high and up 6% from a week earlier. Middle distillates include jet fuel, gasoil, diesel, and marine bunker gasoil.

Light distillates inventory was 6.913 million barrels as of March 22, a two-week low. The category includes gasoline and naphtha.- PLATTS


This still looks strong.


We had a build again in crude stocks, but still withing the 5-year average.

Despite the slight build in gasoline ,,,we are still below the 5-year average.

Another distillate build, but not concerned yet.

A much needed relief in propane draws this week.