Whether current surpluses are temporary or not remains to be seen but one indicator is the movement of US exports and West African oil to Asia, and that pull has been slower, raising the question of whether there will be a catch-up or not in coming months. While China’s manufacturing sector has shown positive growth indicators for several months, predicting energy demand growth remains challenging. Chinese refiners are considering run cuts due to adequate onshore inventories. Margins, particularly gasoline cracks, are at multi-year lows, excluding the COVID period 2020-2021. By contrast in India, the outlook for demand remains robust, driven by record temperatures increasing air conditioning usage and straining power grids.
Can the market absorb the additional 1.5mn b/d of products coming from Mideast refiners this year?
Demand growth globally is up by at least that much, so the market needs that capacity. It is bullish shipping because the extra product from the Middle East must find its way to markets further afield. Clean freight rates are high, but dirty freight rates less so, incentivizing ships to clean up to transport the cleaner products from the Middle East to the Atlantic basin.
Why has the oil price dropped from the $90s over the last six to eight weeks?
When oil prices rose into the $90s, there were significant geopolitical concerns, particularly concerning the Israel-Hamas conflict in Gaza and its potential wider ramifications. But the only real impact has been ships having to reroute around the southern tip of Africa, so that is what has contributed to the price decline, in addition to downward revisions in demand for the year, albeit from a very high base originally. Still, we have the US driving season ahead, forecasted to be robust, and potentially the highest ever use of jet fuel as we enter the Northern Hemisphere holiday season.