When Will Oil Supply Overtake Demand?

1. When Will Crude Oversupply Finally Come?

- The ongoing US-OPEC public spat continues to revolve around the oil market’s immediate prospects, namely its moving into oversupply following several months of global stock draws.

- Latest outlooks from OPEC, IEA, and EIA all indicate that markets should flip into oversupply in Q1-2021, with EIA forecasting it would average some 900,000 b/d over January-March.

- Whilst OPEC remains ambiguous on its own production strategy for 2022, the energy agencies seem to agree that next year should see higher-than-expected non-OPEC supply, primarily from the US, but also from Canada and Guyana.

- Projections of soon-to-come oversupply only corroborate OPEC’s narrative vis-à-vis the Biden Administration that production need not be increased as the market would anyways balance itself out soon.

2. Saudi Crude Exports Move Within 5-Year Range

- Latest JODI data suggests that Saudi Arabia’s crude exports in September averaged 6.52 million b/d, the highest since January, moving into the 5-year range for the first time since May 2020.

- Simultaneously, Saudi crude stocks have bounced back from their lowest-ever readings in September, adding more than 3 million barrels to a total of 136.5 million barrels.

- Following higher-than-average crude burning rates over the summer months, the kingdom’s use of crude for power generation fell to 543,000 b/d in September and is bound to fall even further in the upcoming months.

- According to Kpler data, Saudi Arabia added almost half a million barrels per day in total exported volumes last month, with the monthly average hitting 6.99 million b/d.

3. Thanks to Iranian Condensate, Iran Ramps Up Crude Output

- As difficult as they might be to track, Venezuela’s crude exports have reportedly surpassed the 700,000 b/d mark in October amid increased blending capacity.

- Two VLCCs carrying Iranian condensate have discharged at Venezuela’s Jose Terminal in July and October this year, greatly aiding the Latin American country’s blending potential.

- With this, state-owned PDVSA managed to bounce back from the past months’ weakness and produce the third-highest output number of this year.

- Most Venezuelan cargoes either go directly to China or are ship-to-ship transferred in the Malacca Strait, initially setting up Malaysia as the final destination.

4. Nord Stream 2 Delay Jeopardizes Price Recovery

- The German energy regulatory agency decided to postpone the approval of Russia’s Nord Stream 2 pipeline, demanding that the operator company create a German subsidiary under German law.

- Simultaneously, Gazprom’s not booking any additional capacity for December transit via the Yamal-Europe pipeline sent shockwaves across Europe’s gas market, as supply shortage remains a key challenge.

- German gas in entities, currently only 62% full, are under increasing pressure as the country’s storage sites flipped to withdrawals since November 02.

- Day-ahead TTF prices traded around €85 per MWh ($97/MWh) as of Friday, up more than 17% week-on-week.

5. Qatar Switches Focus to Asian LNG Buyers

Source: Kpler.

- With oil-linked LNG prices currently trending around $14 per mmBtu, Qatar has been seeing a flurry of buying activity from term Asian buyers, sending 5.2 million tons to Asia this month already.

- Although South Korea has been the top destination in the past three months, with average monthly departures averaging around 1 million tons LNG, China leads the pack so far in November in a sign of rejuvenating domestic demand in China.

- Producing the highest monthly LNG export volume to Asia in November to date, Europe’s share has shrunk to its bare minimum, in fact, the lowest since at least 2015 at 8%.

- Qatar has also sought to increase its foothold in Asian LNG infrastructure, only recently applying for clearance to invest in Pakistan’s forthcoming import terminal.

6. Chevron, Exxon are among top spenders at Biden offshore auction

- The first lease sale to be held under the Biden Administration, the US Gulf of Mexico Lease Sale 257, raised $192 million in acquired drilling rights.

- US major ExxonMobil, which so far held little offshore acreage after it sold most of its shallow-water leases a couple of years ago, bid on 92 tracts as it seeks to kickstart its CCS projects.

- Chevron was the most active bidders in the lease sale, landing 34 tracts for a total of $46 million, with Anadarko a close second and landing the auction’s most expensive tract, the Alaminos Canyon just to the south of Houston.

- Lease Sale 257 is one of the last auctions that could take place under the current five-year leasing plan and risks are Washington would not want to extend the plan in its current form.

7. US Coal Prices Catch Up with Global Ones

- US coal prices have soared to their highest in 12 years as ever-increasing demand grows higher than domestic production.

- Central Appalachia coal rose more than $10 per metric ton this week and is currently assessed around $90 per ton this week, according to Platts.

- With US inflation already accelerating to its highest rate since 1990, at 6.2%, higher coal prices increase the risk of further energy-related inflation.

- Asian coal prices, generally considered to be the closest thing to a global benchmark, have trended essentially flat in November with ICE Newcastle around $150 per metric ton.