No sooner had the dust settled after the conclusion of the latest OPEC meeting (with oil traders selling the market like hot cakes), we got Saudi oil minister Khalid Al-Falih saying that exports to the US were dropping measurably.
While this has caused a good degree of excitement in the market, we here at the good ship ClipperData had already highlighted at the beginning of this month that Saudi Arabia had slashed export loadings in April, which would translate into lower deliveries to key demand hubs into June. (Also discussed here on CNBC Asia - May 4th be with you).
The timing of loadings is key. Even though it was suggested that Saudi flows to the U.S. were to fall by 300,000 bpd in March, our projections showed a rebound in deliveries to the U.S. in late April and into May. (As discussed here). This scenario played out as we expected.
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Although the journey time from the Middle East to the U.S. Gulf is about seven weeks, once a vessel rounds the Cape of Good Hope, we have a high degree of confidence around the volume heading in the U.S. five weeks later, based our Bayesian modeling.
All this said, lower April export loadings from Saudi are an affirmation of Khalid Al-Falih's comments yesterday.
Nonetheless, five months into the OPEC production cut deal, and the global market remains well supplied - something signaled by the lack of downside in OECD inventories thus far. We also remain perplexed by the talk of falling floating storage. It hasn't budged in the last month. Related: Unstoppable: U.S. Adds Oil, Gas Rigs As OPEC Extends Deal
Crude waiting offshore Singapore and in the Strait of Malacca continues to hold firm (amid clogged shipping lanes), while crude waiting offshore Shandong in northern China is also building up amid high deliveries (see more below), as well as the talk of storage tanks being full.
It is also baffling to read headlines such as 'OPEC oil cut extension renews Asia's crude supply worries'. OPEC imports into Asia have held steady over the last five months of the OPEC production cut, while regional floating storage has been ticking higher since early March.
While a glut appears to persist, China is continuing to make hay while the sun shines, pulling in as much cheap crude as it can. Meanwhile, exports to the rest of Asia have dropped this month - but due to seasonal refinery maintenance it would seem, as opposed to a lack of supply.
All of this said, if OPEC can unite in its efforts of cutting exports, its goal of slashing OECD inventories is achievable. But based on the evidence of the last five months, changes need to be made for this to happen.
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By Matt Smith
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