Up, Up and Away

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Back in November 2016, we discussed how global loadings were at a record ahead of the OPEC / NOPEC production cut deal, as exporters put the pedal to the metal, exporting as much crude as they could before having to hit the brakes.

Fast forward two years and I have a few more gray hairs we’re in an oddly similar predicament. Saudi Arabia has ramped up oil production to a record this month, seemingly after being duped by President Trump, and according to our ClipperData, Saudi crude exports are also at the highest on our records.

The OPEC production cut deal finished mid-year, and we have seen oil in transit climbing ever since. This rise has accelerated in the last two months, as crude flows to Asia have increased amid the need to fill a perceived supply gap left by Iran. 

oil in transit

Not only has this supply gap been much smaller than expected due to higher Iranian flows – a result of both sanction waivers and other tactics – but the situation has been exacerbated by Latin American and West African barrels being pulled towards Asia, as demand for heavier sour barrels tied to the Dubai-Oman benchmark has made Latam and WAF barrels a more attractive option.

YoY exports to China

This ramp up in oil in transit / volume bound for Asia could be considered bullish (as discussed earlier this week), if it were not for what we are seeing in terms of floating storage. Global crude floating storage has made a significant jump higher since early November, coinciding with the forward curve for oil moving back into contango:

Global crude floating storage ClipperData

In the aftermath of the OPEC / NOPEC meeting next week, we’re likely to hear the announcement of a material production cut. But just as we saw in late 2016, an acceleration in crude supply ahead of the cut will only delay the rebalancing effort.