Crude oil falls as Doha hopes wane

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habTwo hundred and thirty-two years after the first balloon ride in Ireland, and the crude market is looking deflated ahead of the Doha meeting on Sunday (…ministers have run out of hot air it seems…). As we move across the tipping point of the month toward May, here are six things to consider in oil markets today:

1) Jumping straight into the overnight economic data, Chinese numbers were on the whole pretty good. GDP for Q1 was smack dab in line with consensus (convenient?), showing +6.7% growth YoY. As for industrial production and retail sales, both were better than expected; industrial production rebounded strongly to 6.8% YoY, while retail sales edged higher to 10.5% YoY. These numbers give some tentative hope that ongoing stimulus measures are gaining some traction:

China gdp ind pro retail sales

2) A key release from a crude perspective in the US today has been industrial production. Once again, it has been disappointing, down 0.6% in March on the month prior, and now down on a year-over-year basis for seven consecutive months. This is a red flag for both the broader economy and energy demand going forward; no wonder distillate demand is so weak, down 7% year-on-year…

US industrial production yoy Source: tradingeconomics.com

3) The chart below is pilfered from this piece by Art Berman. It highlights the persistent nature of global oversupply, despite falling US oil production. It illustrates how the global market last month was oversupplied by 1.45 million barrels per day, an increase of 270,000 bpd on the prior month:

EIA supply demand balance

4) We highlighted yesterday how the EIA projects 1.4 mn bpd will be added to inventories on average this year, with an additional 0.4mn bpd in 2017. This is very much in contrast to the IEA projection, which sees the global oil surplus dramatically narrowing in the latter half of the year.

Given the two agencies agree that demand growth will average 1.2mn bpd this year, the divergence betwixt the two is therefore driven by supply-side expectations. The IEA expects a more significant drop in non-OPEC supply (and specifically US production) while it expects the return of Iranian barrels to the market to be ‘more measured’.

iea surplus going

5) The below chart is from Rystad Energy, with its projection for oil demand growth for this year. We had the triumvirate of reports from the EIA, IEA and OPEC this week, all singing from the same hymn-sheet, projecting demand growth at 1.2 million barrels per day this year.

Rystad sees demand growth at a lesser 1mn bpd, with China, India and Saudi Arabia leading the charge. It expects these three will account for 60%, or 600,000 bpd, of total demand growth. Expectations for stronger Indian oil demand growth continue to grow.

Rystad oil demand growth

6) Finally, this week’s OPEC report highlighted ‘renewed US buying interest in West African light sweet grades‘ as the Brent-WTI spread narrowed in March. We see in our ClipperData that imports to the East Coast – where West African crude predominantly heads – were up nearly 20% in Q1 versus last year’s volume.

As the economics of crude-by-rail from Bakken remain unfavorable, East Coast refiners are instead turning to imports from both Latin America and West Africa. Even though total US imports from West Africa dropped last month, OPEC is indeed right that light sweet grades increased: 225,000 bpd of receipts were light sweet barrels in March, compared to 129,000 bpd in the month prior.

ClipperData US imports from West Africa