Jan 10, 2021

Thomas Thornton


Last week the big news was the OPEC meeting. I wrote a report on Tuesday in detail, but to briefly summarize, Saudi Arabia on a surprise maneuver at the OPEC presser announced an unprecedented cut of -1 Million bpd for February and March off January levels. Their production will be 8.125M for February and March down from 9.119M bpd.

There also will be an additional 425K cuts for both February and March from the countries that were overproducing this summer/fall in compensation cuts.

Total OPEC cuts: 1.425M bpd for both February and March

Russia will get a small increase of +65K bpd, and Kazakhstan +10K bpd


We have just about reached the 78.6 % (52.99) retrace of the December high to the April low and are once again overbought, I would expect crude to take another pause around here and work off some of that overbought condition.


BBG: After Saudi Arabia surprised the market with an output cut, traders bought SEVEN benchmark North Sea cargoes on the Platts window on Thursday, a record number for a single day, signaling a tightening market. Unipec (Singapore) was the largest buyer.

INDIA: India’s fuel demand at 11-month high in December amid economic recovery. India’s fuel demand rose for the fourth straight month in December as the resumption of economic activity took consumption to 11-month high, reaching 98% of pre-COVID levels, compared to 49% in April. – Business Standard.

GS REPORT: Goldman sees demand rebounding by March, $65 Oil with warmer weather & vaccinations. Ramping up output will take time & the bank predicts a crude deficit of 1.3 million barrels a day April-July despite OPEC+ increasing production by 4 mb/d.

RAYMOND JAMES: We believe 400 rigs long-term is reasonable at the current strip and therefore U.S. supply declines into perpetuity.

I have written before that US production, will likely never reach 13.5M bpd (height of 2019) ever again. This chart is a good illustration of why.

LONDON: Interesting to note that while London has been on the harshest lockdown for the past two months, the CityMapper mobility index shows that it is moving over twice as much as the first lockdown. Good news for oil/fuel market.

Source: CityMapper

Birmingham shows the same

Source: CityMapper

CALIFORNIA: This week Sonoma County backed off their natural gas ban in new construction, after developers filed lawsuits. We may start seeing this in other places. I am keeping an eye on this.

INTERESTING REPORT ON EV’s: A Low CVP-commissioned report prepared by Ricardo has highlighted the increasing importance of accounting for whole life carbon emissions to compare the environmental performance of vehicles. Up to now, tailpipe emissions have been used as the main indicator of emissions performance.

The study says that electric and hybrid cars create more carbon emissions during their production than standard vehicles, but are still greener overall.

The study found that some of the CO2 savings made during the use of low carbon vehicles are offset by increased emissions created during their production and, to a lesser extent, disposal. Ricardo consultancy estimated that production of an average petrol car will involve emissions amounting to the equivalent of 5.6 tonnes of CO2, while for an average electric car, the figure is 8.8 tonnes. Of that, nearly half is incurred in producing the battery.

However, the study concluded overall electric and hybrid vehicles still have slightly lower carbon footprints than normal cars. EV’s being 18 tonnes compared to ICE vehicles at 20 tonnes. The report was prepared by Ricardo for, and in collaboration with, the expert membership of the Low Carbon Vehicle Partnership that includes major vehicle manufacturers and oil companies.


US: December LNG exports in the US set another record. U.S. exports of liquefied natural gas (LNG) set a new record in December after a record-breaking November 2020, averaging 9.8 billion cubic feet per day (Bcf/d), according to the U.S. Energy Information Administration (EIA) estimates based on the shipping data provided by Bloomberg Finance, L.P. U.S. LNG exports in December were more than three times higher than the reduced export levels in the summer of 2020.

Several factors have contributed to higher levels of U.S. LNG exports in recent months. LNG demand increased due to colder-than-normal winter temperatures in key Asian LNG-consuming markets. Moreover, supplies of LNG decreased because of unplanned outages at LNG export facilities in Australia, Malaysia, Qatar, Norway, Nigeria, and Trinidad and Tobago. Reduction in LNG supply led to higher international natural gas and LNG prices in Asia and Europe, attracting higher volumes of flexible LNG supplies from the United States. -EIA

ASIA: Due to unusually cold weather, Eastern Asia LNG Monthly imports are also at highs. This causing Japan Korea Marker (JKM) to surge to a at record high price of $20.705/mmbtu.

EUROPE: Rare Snow Blanketing Madrid Creates Energy-Market Chaos.

Spanish natural gas prices surged to a record as the nation grappled with unusually cold weather that even brought a rare snowfall to Madrid.

The day-ahead price on Spain’s PVB gas trading hub has more than doubled since the start of the year and is near the record-high at $18.50/mmbtu .


Weather services are predicting a Polar Vortex to hit North America. The breakage is expected to send cold air blasting into Western Canada, the northern plains, and the Midwest, dipping temperatures there 15 to 30 degrees below normal late this month. US LNG is trading just below the 5-year average, and FAR below its global counterparts. We could see a surge in natural gas later this month if Asia and Spain give us any insights. That said, I would not expect US nat gas prices to reach anywhere near Asia or Spain, but it does have room for a run.

ACTIONABLE IDEA: 16 April 21 UNG calls


Eric Nuttall of Ninepoint Capital noted, that inventories show a healing oil market: US “Big 3” YOY surplus fell by 16% this week to 66M Bbls while global oil inventory surplus is normalizing…down to 253MM Bbls from a high of 446M Bbls (1.8MM Bbl/d reduction). With Saudi’s 1MM Bbl/d we could see normalized levels by June.


We had a global crude draw, but a product build, same thing we saw in the US, due to tax assessment. Overall that product build is much less than prior years,indicating that global demand continues to be strong.

Source: Open Square Capital


Oil product stocks drop to 4-week low.

As of Monday, January 4 total oil product stocks in Fujairah were reported at 23.371 million barrels. Total stocks fell by 224,000 barrels or 0.9% week on week, with draws in light distillates and middle distillates offsetting a build in offset heavy residue storage levels.

Stocks of light distillates saw a draw of 50,000 barrels or 0.7% week on week to stand at 7.300 million barrels.

Stocks of middle distillates fell by 559,000 barrels to 4.470 million barrels – down by 11.1% on the week. This is the lowest level since late October, when on October 26 stock levels stood at 4.320 million barrels.

Stocks of heavy residues posted a build for the second consecutive week adding 385,000 barrels or 3.4% on the week to 11.601 million barrels. Bunker activity in Fujairah saw a rebound with the New Year as traders returned to their desks and shipowners sought parcels for their vessels.

The East of Suez gasoline market was under some downward pressure with movement restrictions across parts of Asia continuing for the foreseeable future. Indonesia and Malaysia continue to report higher daily cases of coronavirus infections. The Malaysian government said Jan. 1 that the country’s Recovery Movement Control Order will be extended at least until March 31. -Platts


Crude stocks continue to draw down nicely, we are just about into the 5 year average. This week will be an important week for inventories. I would like to see another draw to place us firmly within the average.

Gasoline stocks are up, but still within the 5-year average. Seasonally, we are hitting soft season for gasoline, so I am not too concerned at this juncture.

Distillate stocks, like gasoline are also withing the average, but I do not wish to see many more weeks of big builds.

Propane continues to draw quickly, I suspect this trend will continue as weather gets colder.