Column: Physical Oil Market Tightens as Output Cuts, Economic Recovery Take Hold - Kemp
05.25.2020 By Ricardo Perez - NEWS

May 25, 2010 [Reuters] – Physical crude markets are signaling a rapid shift from an enormous over-supply at the height of the coronavirus lockdowns in April toward an expected under-supply in the second half of the year..

 
Dated Brent’s six-week calendar spread has shrunk to a contango of less than 70 cents per barrel from more than $6 per barrel in the first week of April.

Calendar spreads correlate closely with the expected production-consumption balance and are usually a more accurate indicator than spot prices alone.

Dated Brent is based on the cost of buying and selling physical cargoes from the Brent, Forties, Oseberg, Ekofisk and Troll field-systems in the North Sea.

Unlike futures contracts LCoc1, trading is very near-term and dominated by producers, refiners, physical merchants and large financial institutions, with few hedge funds and no retail investors.

Because dated Brent is a complex of seaborne crudes, it avoids the storage constraints that have distorted inland WTI prices recently.

The shrinking calendar spread is therefore a strong signal the physical market has become much better balanced over the last six weeks.

The Organization of the Petroleum Exporting Countries and its allies have cut crude exports sharply while refineries’ consumption has started to rise as lockdowns ease.

Fears about running out of crude storage at tank farms on land and in vessels off the coast have disappeared.

Dated Brent’s six-week calendar spread is now in the 20th percentile for all trading days in the last decade up from the 1st percentile early last month.

In a longer term perspective, the crude market remains weak but no longer exceptionally so. Current spreads are consistent with high but stable or falling inventories, a sharp turn around from surging stocks a month ago.

Like the production-consumption balance, spreads tend to be cyclical, and are likely to tighten further, provided the economy continues to recover and oil producers remain disciplined.

————-

Click Here to Access Today a 5,100 Tank Terminal Database With a Pro Trial
5,100 terminals as per the date of this article. Click on the button and register to get instant access to actionable tank storage industry data

ONEOK Announces Completion of NGL Fraction and Pipeline Expansion Projects
12.06.2024 - NEWS
December 06, 2024 [ONEOK]- ONEOK, Inc. today announced the completion of MB-6, a 125,000-barrel p... Read More
Aker Horizons and VNG Sign Term Sheet for the Supply of Green Ammonia from Norway to Germany
12.06.2024 - NEWS
December 06, 2024 [VNG]- The Leipzig-based gas trader VNG Handel & Vertrieb GmbH (VNG H&V... Read More
VNG and HyCC Plan to Produce Green Hydrogen in Lutherstadt Wittenberg
12.06.2024 - NEWS
December 06, 2024 [VNG]- Leipzig-based energy company VNG AG, its wholly-owned gas trading subsid... Read More
Belgium and Oman Strengthen Green Hydrogen Ties Under New Agreement
12.06.2024 - NEWS
December 06, 2024 [H2 View]- Belgium and Oman have agreed to “further strengthen” collaborati... Read More