Oil Through the Looking Glass 16/6/20

*Covid-19 vs Supply Cuts*

The tussle between bearish and bullish news continues for crude. Coronavirus cases rose to more than 8 million worldwide yesterday, with infections surging in Latin America, while the United States and China are dealing with fresh outbreaks. On the supply side the UAE energy minister said that he had confidence OPEC+ members would up their game to fulfil cut agreements. Those countries that do not make their cuts now, will make them up with extra cuts later. Fighting talk from OPEC, and the market has reacted positively off the back of this.



*Hedge Funds Sit and Wait*

Money managers have been little interested in changing their oil bets of late. For a second week running they have made no significant changes to their positions in any of the six major oil contracts. Funds were small buyers of Brent (+12 million barrels) but there were no significant changes in NYMEX and ICE WTI (unchanged), U.S. gasoline (-3 million), U.S. diesel (-1 million) or European gasoil (+1 million). Although things are positioned slightly bullish for Brent, WTI is neutral, and middle distillates and gasoline both below their average buy/sell ratios.



*China Has Been Stockpiling*

We have written previously about the rising demand for crude in China, however this seemingly bullish factor of increased demand has more to do with stockpiling than a full-blown recovery. Chinese imports in May were 11.296 million barrels per day (bpd), while domestic output was 3.88 million bpd, giving a total amount of 15.18 million bpd available. Refinery throughput was 13.69 million bpd, up 8.2% from May last year and the fourth-highest on record on a barrels per day basis. With the low oil prices, Chinese buyers have been stocking up on supplies, causing traffic jams at ports. This has pushed up storage levels, with the first five months of this year, stocks up 620,000 bpd. For us the declare that things are all back to normal, we are going to have to see sustained levels of demand, and also other countries beyond China coming back in to buy. (FIS)