ARA oil product stocks rise (Week 21 – 2021)

May 27, 2021 — Independently-held inventories of oil products in the Amsterdam-Rotterdam-Antwerp (ARA) trading and storage hub have risen over the past week, according to the latest data from consultancy Insights Global.

Total stocks stand, rising for the second consecutive week having reached 13-month lows two weeks ago. Stocks of all surveyed products rose with the exception of naphtha, which fell on the week to its lowest level since February 2020. The heavy fall in naphtha inventories a week earlier was the result of higher demand from gasoline blenders in the Amsterdam and Antwerp areas, for gasoline for export mostly to the US, where summer driving season has started.

Gasoline inventories ticked up, but relative stability in overall stock levels masked high levels of in and outflows. Gasoline tankers departed for the US, the Caribbean, Canada, the Mediterranean and west Africa. Tankers carrying finished grade gasoline and blending components arrived from Denmark, France, Italy, Portugal, Russia, Sweden and the UK.

Gasoil stocks rose on the week, supported by the arrival of the Very Large Crude Carrier (VLCC) Hunter from east of Suez, as well as smaller cargoes from Poland, Russia and the US. The volume of gasoil departing for terminals along the river Rhine rose on the week, bolstered by firm demand from key market Germany as well as relatively low barge freight costs. Ample water in the river Rhine as well as low demand barges relative to the pre-Covid era mean that there are currently more than enough barges available for any cargoes that need to be moved inland.

Fuel oil stocks rose to reach four-week highs, bolstered by the arrival of cargoes from Estonia, Russia, Sweden and the UK. The Mediterranean was the only export region to receive any fuel oil cargoes from ARA.

Reporter: Thomas Warner

Column: U.S. gasoline consumption nears pre-pandemic level

U.S. traffic volumes have almost returned to pre-pandemic levels, helping normalise gasoline consumption as more businesses re-open, domestic leisure travel resumes and workers return to offices.

The volume of traffic on all roads was down by less than 4% in March compared with the same month two years ago, according to the Federal Highway Administration (“Traffic volume trends” FHWA, March 2021).

Traffic levels had been down 41% in April 2020 at the height of the first wave of the pandemic and were still down 11% as recently as December 2020 during the second wave.

Car use likely increased further in April and May as social-distancing restrictions were relaxed and more service businesses and offices re-opened.

More driving means more fuel consumption.

The volume of gasoline supplied to the domestic market, a proxy for consumption, was down by just 4% at 8.9 million barrels per day in the four weeks to May 14 compared with the pre-pandemic five-year average of 9.3 million b/d.

The remaining driving and fuel deficits are likely to be erased over the third quarter as more employees return to central offices and domestic tourism recovers.

The rapid normalisation of gasoline consumption has encouraged a strong resumption of motor fuel production, which is nearing pre-pandemic levels.

Refinery gasoline production is down by just 3% compared with the five years from 2015 to 2019, according to the Energy Information Administration (“Weekly petroleum status report”, EIA, May 19).

Like the driving and consumption deficits, refiners’ gasoline production is likely to reach pre-pandemic levels during the summer

The enormous surplus that accumulated during the pandemic’s first wave has been absorbed. Inventories held at refineries, tank farms and in pipelines are back in line with the pre-COVID five-year average.

Jet fuel consumption is still severely affected by quarantine restrictions. But in the gasoline market the impact of the pandemic appears largely over, provided there is no resurgence of infections.

Ship Insight, by John Kemp, May 24, 2021

Why China Will Be The World’s Largest Oil Refiner In 2021

In the global refining industry, COVID-19 has exposed a seismic shift. While China’s oil refineries forge ahead with capacity expansion, many western-based refiners have retrenched.

As China again hits the stimulus pedal, this year it is expected to officially surpass the U.S. as the world’s largest oil refiner according to the International Energy Agency (EIA).

This can be partly explained by China’s head start in recovering from the pandemic. While much of the world remains under varying states of lockdown, China’s economic growth hit 6.5% in the fourth quarter of 2020, meaning that it grew 2.3% for the full year. It is the only major economy to have expanded in 2020.

There are four other structural factors driving the global refining industry amid China’s new capacity boom. Let’s take a look at each.

COVID Fallout For Refineries

According to the EIA, as economies locked down and airlines were grounded, global oil demand slumped 9.2% to 92.2 million barrels a day. Refineries were quick to feel the impact with about 1.7 million barrels a day of refining capacity being halted in 2020, with more than half of that decrease in the U.S.

And while Europe’s pandemic induced lockdowns may be temporary, at the end of 2020 they were taking out some 900,000 barrels a day of road fuel demand according to Rystad Energy.

Added to the deep recessions in the many western countries, the growing pressure to phase out fossil fuels is another headwind. One example is the move by President Biden to pause new domestic oil exploration on federal land.

Consumers Driving Demand

While Asia has not escaped pandemic travel disruptions, the refining industry outlook is on much firmer footing because the main demand driver for refined oil products is the region’s vast consumer markets – namely the billion-plus populations of China and India.

Capacity expansion there is being driven by plastics and other petrochemicals where refined crude oil is the essential building block for everything from food packaging, clothing, cosmetics and fertilizer, even car interiors.

According to industry consultant Wood Mackenzie, approximately 70% to 80% of new refining capacity coming on stream in Asia up to 2027 will be plastics-focused. As well as China, this includes several new plants in India and the Middle East.

Consumer demand, however, is only part of the story behind China’s refinery building.  The other factor is supply and the role of the country’s resurgent independent refineries. 

China’s Upgraded “Teapots”

The explosive growth today in China’s refining capacity has its roots in a major regulatory shift in 2015 when independent refiners (known as “teapots”) were first allowed to import crude oil. The rationale was that in return for import quotas, they would upgrade, modernize and instill wider competition and efficiency in the state-dominated oil industry.

As refining capacity has surged with China’s crude oil imports, this helps China surpass the U.S. to become the world’s largest importer.  

These teapots are now leading the charge with bigger, integrated refineries. At least four projects with about 1.4 million barrels a day of crude-processing capacity – more than all the refineries in the UK combined – are under construction.

By 2025, China’s crude processing capacity is expected to reach 1 billion metric tons a year, or 20 million barrels per day, up from 17.5 million barrels at the end of 2020, according to China National Petroleum Corp’s Economics & Technology Research Institute.

China’s state-owned oil behemoths are also not sitting on their hands either. Last year Russian petrochemicals producer Sibur and China Petrochemical Corp (Sinopec Group) began to work on what is set to become the world’s largest polymer plant, the Amur Gas Chemical Complex in Russia. This $11 billion venture will produce 2.3 million metric tons of polythene and 400,000 metric tons of polypropylene per year. Sinopec is set to take a 40% stake in the complex, which is due for completion from 2024.

New Capacity?

The surge in China’s refining capacity is already having an impact across the global refining industry.

More crude oil is finding its way to China and Asia and less is routed to traditional western customers. The demand from Chinese refiners has coincided with Oman crude oil trading at a sustained premium to Brent for the first time in four years.

Although increased production by China’s independents is largely trapped inside the domestic market due to export quotas, it has allowed the giant state operators to export more. This has led to China’s surplus refining capacity finding its way to international markets as it takes global market share. Exports of refined products have increased to Hong Kong, Singapore, the Philippines, Australia and South Korea. This has already been felt by older plants with Shell in Singapore announcing cuts to its capacity in Singapore in 2020.  

As more supply comes on stream, it will come sharply into focus whether demand for plastics and petrochemicals will really be able to take up the slack, particularly as demand for refined fuel abates. China National Petroleum sees fuel demand peaking in China by 2025 as electric vehicles sap consumption.

Another wild card to consider is China’s clean energy push with President Xi Jinping pledging China would be carbon neutral by 2060.  

Ultimately, what is easier to predict is that, with China’s refinery capacity leading the world, it will also increasingly play a bigger role in regional and perhaps global markets for oil and refined products

Benzinga, by CME Group, May, 24, 2021

Independent ARA product stocks hit fresh 13-month lows (Week 20 – 2021)

May 20, 2021 — Independently-held inventories of oil products in the Amsterdam-Rotterdam-Antwerp (ARA) trading and storage hub fell during the week to 19 May, according to the latest data from consultancy Insights Global.

Total stocks fell over the past week, their lowest since April 2020. Inventories typically fall during the spring refinery maintenance season, as producers draw down stocks to meet their supply agreements.

Inventories are now broadly in line with the level recorded in the same week of 2019, in a further sign of the gradual return of more typical trading conditions in the European refined products markets.

Inventories of all surveyed products fell on the week except jet fuel which rose, supported by the arrival of cargoes from Kuwait and India. Several tankers departed for the UK, where demand is ramping up ahead of the summer.

And the volume of jet fuel moving around the ARA area on barges rose on the week for the same reason, as regional airports in northwest Europe begin preparations for the summer.

Gasoline inventories dropped on the week, as tankers continued to depart for destinations across the Atlantic. The volume departing on the westbound transatlantic route rose on the week, and tankers also departed for South Africa and west Africa. Tankers arrived in the ARA area from France, Italy, Norway, Russia and Sweden.

Gasoil stocks fell on the week, despite a week on week fall in flows of middle distillates to inland Rhine destinations. Inventories inland are high owing to an influx of barges in recent weeks, after a drop in freight costs from the ARA area.

Freight costs fell in response to a seasonal rise in Rhine water levels, but recovered quickly as market participants moved middle distillates inland. Tankers arrived in the ARA area from Germany, Poland and the UK and departed for Norway, Russia and the US.

Naphtha inventories fell, weighed down by an increase in demand from gasoline blenders and petrochemical companies along the Rhine. Tankers arrived in the area from Algeria, the Mediterranean, Poland, Russia, Spain and the UK.

Fuel oil stocks fell to four-month lows, mostly a result of a drop in imports from Russia. A single Aframax tanker arrived from Russia during the week, while smaller cargoes arrived from Estonia and Germany. Fuel oil departed the region for Port Said and west Africa.

Reporter: Thomas Warner

Crude Oil Looking Beyond Short-Term Challenges

Crude oil and natural gas have both been lagging some of the blistering pace of other commodities this past week.

Oil continues to be torn between the uneven recovery in global fuel demand, especially due to continued virus flareups across Asia, writes Ole Hansen, Head of Commodity Strategy, Saxo Bank.

Adding to this has been the disastrous hacking attack on the Colonial Pipeline which supplies 2.5 million barrels/day of fuel products from refineries in Texas to consumers along the US East coast.

As a result the US national average retail gasoline prices have risen above $3 a gallon for the first time since 2014, but while fuel stations across the East and South have started to run out, some refineries have been forced to cut runs leading to lower demand for crude oil.

A bigger-than-expected cut in crude stocks, reported by the American Petroleum Institute last night, was offset by a big increase in gasoline stocks.

All this happens as the commodity sector remains on a tear with several key raw materials from copper and iron ore to corn and palm oil trading at or near multi-year highs.

Inadvertently thereby adding to the debate over whether commodity-driven inflation pressures will be persistent enough to force the Federal Reserve to tighten policy sooner than currently expected.

Hence the focus on today’s US CPI data which is expected to show a year-on-year jump of 3.6%. With most of the change being down to seasonality, the focus may for once be centered on the monthly increased, expected at just 0.2% compared with 0.6% in March.

The rally this past week has been led by industrial metals and grains while crude oil and natural gas for various reasons have struggled to keep up. Overall, however, the Bloomberg Commodity Spot index is trading at a fresh ten-year high, and now up by one-third since early November when vaccine news accelerated growth and demand expectations.

Meanwhile, during the week, Opec, the IEA and the EIA have all published their monthly oil market reports. Overall no major changes were made with world oil demand seeing a small downgrade due to virus breakouts in Asia while non-Opec supply was lowered due to slower US shale growth.

Since late March Brent crude oil has traded in a rising but narrowing channel, currently between $70.80 and $67.25, the latter also being the 21-day moving average, a technical indicator which gives a good idea about short term momentum. We struggle to see Brent make much short-term headway above the triple top at $71.3, so while urging short-term caution we maintain a bullish outlook for the second half of 2021, primarily due to the prospect for a rapid growth in global fuel demand as vaccine rollouts reduce the impact of local virus flareups.

Natural Gas has spent the past couple of weeks trading sideways within a relative tight range between the $2.86 and $2.98, levels that represents the 50% and 68.2% Fibonacci corrections of the February to March sell-off. The close proximity to the rising trend line from the April low points to a market that is getting ready for break, either towards $2.80 or higher towards the February high around $3.31.

TradeArabia, by Ole Hansen, May 18, 2021

Critical Infrastructure Really Is critical. The US Must Act Now

What do businesses need to operate? Electricity, water and gasoline are near the top of the list, and recent infrastructure failings suggest the foundations of the US economy may be on shakier ground than thought.

In February, extreme weather overwhelmed the electric grid in Texas, causing days of power and water outages in a state where many people depend on electric heat. Oil production plummeted and refineries were forced to close.

Three months later, a criminal gang believed to be operating in Eastern Europe launched a cyberattack on the Colonial Pipeline, which stretches from Texas to New Jersey and transports half the fuel consumed on the East Coast. Panic buying and gas shortages followed.

Both snafus caused real trouble for consumers and businesses, but they are far from isolated events. The US Department of Homeland Security warned in February 2020 that a cyberattack had forced a natural gas compression facility to close for two days. In 2018, multiple US natural gas pipeline operators were hit by an attack on their communication systems.

The threats from cyberattacks and extreme weather have been well known for years, but experts say wide swaths of the United States’ critical infrastructure remain vulnerable. The private sector and government both have roles to play in hardening defenses and preventing future damage.

“The ransomware attack on the Colonial Pipeline in the US shows the critical importance of cyber resilience in efforts to ensure secure energy supplies,” Fatih Birol, the head of the International Energy Agency, said on Twitter. “This is becoming ever more urgent as the role of digital technologies in our energy systems increases.”

The private sector owns roughly 85% of US critical infrastructure and key resources, according to the Department of Homeland Security. Much of that needs an urgent upgrade. The American Society of Civil Engineers estimates there will be a $2.6 trillion shortfall in infrastructure investment this decade.

“When we fail to invest in our infrastructure, we pay the price. Poor roads and airports mean travel times increase. An aging electric grid and inadequate water distribution make utilities unreliable. Problems like these translate into higher costs for businesses to manufacture and distribute goods and provide services,” the group warned.

As the Colonial Pipeline crisis unfolded, President Joe Biden signed an executive order that is designed to help the government deter and respond to cyber threats. The order will establish standards for software purchased by federal agencies, but it also calls on the private sector to do more.

“The private sector must adapt to the continuously changing threat environment, ensure its products are built and operate securely, and partner with the federal government to foster a more secure cyberspace,” the order states.

The private sector can work more closely with the government, analysts say, including improved information sharing with law enforcement agencies. Corporate boards need to be fully engaged on cyber issues, and management should relentlessly enforce basic digital hygiene measures including the use of strong passwords. If hackers demand a ransom, it’s best to not pay.

Experts say that regulators need to increase oversight of critical infrastructure. The Transportation Security Administration, for example, is charged with regulating pipeline cybersecurity.

But the agency issues guidelines not rules, and a 2019 watchdog report found it lacked cyber expertise and had only one employee assigned to its Pipeline Security Branch in 2014.

“For twenty years the agency has chosen to take a voluntary approach despite ample evidence that market forces alone are insufficient,” Robert Knake of the Council on Foreign Relations said in a blog post.

“It may take years to get the pipeline industry to a point where we can have confidence that companies are appropriately managing risks and have constructed systems that are resilient,” he added. “But if it is going to take years to secure the nation, it is well past the time to get started.”

Biden, meanwhile, is pushing his roughly $2 trillion plan for improving the nation’s infrastructure and shifting to greener energy as part of the solution.”In America, we’ve seen critical infrastructure taken offline by floods, fires, storms and criminal hackers,” he told reporters last week. “My American Jobs Plan includes transformative investments in modernizing and in securing our critical infrastructure.

But critics say the infrastructure proposal doesn’t do enough to address malicious cyber security, especially in light of the Colonial Pipeline attack.

“This is a play that will be run again, and we’re not adequately prepared. If Congress is serious about an infrastructure package, at front and center should be the hardening of these critical sectors — rather than progressive wishlists masquerading as infrastructure,” Ben Sasse, a Republican senator from Nebraska, said in a statement.

Are prices going up? That can be hard to measure

Just about everything is getting more expensive as the US economy rebounds and Americans spend more on shopping, traveling and eating out.
US consumer prices in April shot up 4.2% from a year earlier, the Bureau of Labor Statistics reported last week. It was the biggest increase since 2008.

Big moves: The biggest driver of inflation was a steep 10% increase in used cars and truck prices. Prices for shelter and lodging, airline tickets, recreational activities, car insurance and furniture also contributed.

Rising prices unnerve investors because they could force central banks to pull back on stimulus and raise interest rates sooner than expected. This week, investors will be watching to see if the inflationary trend is taking hold in Europe, with price data due Wednesday.
But spare a thought for the bean counters tasked with calculating inflation during a pandemic, when buying patterns have changed dramatically because of lockdowns and the big shift to online shopping.

“On a practical level, statistics offices have faced the problem of having to measure prices when many items are simply not available for purchase due to lockdowns. They also need to account for shifts in the timing of seasonal sales caused by the pandemic,” said Neil Shearing, group chief economist at Capital Economics.

“All of this means that ‘measured’ inflation, which is to say the monthly figure reported by statistics offices, may differ from the true rate of inflation on the ground,” he added.

CNN Business, by Charles Riley, May 18, 2021

PE Firm Bluewater Backs New Energy Storage Infrastructure Company with $250m

May 14, 2021 A new company has been launched with $250m of backing from private equity firm Bluewater.

Global Energy Storage (GES) has been set up by the management team of hydrocarbon storage and logistics firm Global Petro Storage (GPS) and is focused on developing storage and logistics projects for LNG, LPG, hydrogen, ammonia and renewable fuels.

The team is based in Singapore, the Netherlands, UAE and London is led by chief executive Peter Vucins and executive chairman Eric Arnold. CIO Alan Hyslop, CFO Sim Seow Wah, and CTO Mark Synnott also join from GPS.

Mr Vucins said the team would initially work across both GES and GPS, which Bluewater first invested in five years ago. He said the management team would stay with GES in the event of a Bluewater exit from GPS.

The CEO said GES was developing an “exciting pipeline of projects” in Southeast Asia and Latin America and expected to announce its first deal “very soon”.

GES is also interested in contributing to decarbonisation in the UK, which has ambitions for growing hydrogen production, particularly in places like Humberside.

In addition, GES has signed up to the Transhydrogen Alliance, alongside Dutch engineering firm Proton Ventures, Dubai-based Trammo, and VARO, an European mid- and downstream energy company. The consortium was set up to work together on the production and import of green hydrogen and green ammonia into Europe via Rotterdam.

Mr Vucins said: “There is an urgent need for storage assets for the next generation of low carbon fuels.

“GES has the expertise and financial backing to develop this crucial infrastructure at key locations around the world.

“I am delighted that GES will be playing its part as we all work together to meet the ambitious, and essential, Paris carbon reduction targets.”

Mr Arnold said: “GES has a unique proposition. Our team has proven experience that is second-to-none. We have PE backing, so we can make swift decisions and take a longer view, rather than focusing on just the next quarter. And we have a strong focus on energy transition fuels. You put these together, and I believe Global Energy Storage is extremely well-placed to make a significant contribution to the Energy Transition.”

Bluewater managing director Martin Somerville added: “Peter and Eric are genuine leaders in the sector, and that’s why we’re supporting this new vehicle to build on the continuing success of GPS. GES will allow them to target new markets and opportunities that help deliver new storage solutions for the energy transition.”

By Private Equity Insights, May 14, 2021

Independent ARA product stocks fall to 13-month lows (Week 19 – 2021)

May 13, 2021 — Independently-held inventories of oil products in the Amsterdam-Rotterdam-Antwerp (ARA) trading and storage hub fell during the week to 12 May, according to the latest data from consultancy Insights Global.

Total stocks fell over the past week, dropping to their lowest since April 2020. Inventories typically fall during the spring refinery maintenance season, as producers draw down stocks to meet their supply agreements. The massive drop in demand caused by Covid-19 over the past year means that inventories are higher than in the same week in 2019.

Inventories of all surveyed products were lower on the week. Fuel oil stocks fell more than any other product for the second consecutive week.

Outflows from the ARA to the Mediterranean and west Africa rose, and local bunkering demand was also higher. The arrival of a Suezmax and various smaller tankers from Estonia, Germany, Poland, Russia and the UK partially offset the rise in outflows.

Gasoil stocks fell on the week, weighed down by a rise in barge flows to inland Rhine destinations. The volume heading up the Rhine from the ARA area reached its highest since November 2020, supported by a collapse in barge freight costs that was itself the result of rising Rhine water levels and ample availability of barges. Gasoil cargoes arrived in the ARA area from Russia and the US, and departed for Argentina, France, the UK, the US and west Africa.

Gasoline inventories fell, also weighed down by high barge flows up the river Rhine. Gasoline production is curtailed at German refiner Miro’s plant because of a defective catalytic reformer, which has been operating below capacity since 30 April.

Traders in the German market have moved gasoline from storage in the ARA into destinations along the Rhine in order to make up for the lower supply from the refinery. Tankers departed the ARA for Mexico, Port Said, west Africa and the US. Outflows to the US rose on the week as a result of firm demand from the US Atlantic Coast.

Tankers arrived in the ARA area from Denmark, Finland, France, Ireland, Russia, Spain, Sweden and the UK.

Naphtha stocks fell on the week. The volume heading inland on barges was stable at the level seen for the previous few weeks.

Tankers arrived in the region from Algeria, Italy, Norway, Russia and the UK. A single cargo departed for Brazil for use in the petrochemical sector.

Jet fuel stocks fell, despite the arrival of a cargo from Kuwait, while small cargoes departed for the UK. There was no sign of a week on week increase in demand from regional airports.

Reporter: Thomas Warner

Will Oil Hit $80 This Summer?

India, the world’s third-largest oil importer, is the latest coronavirus hotspot. It has recently hit a record-breaking number of new daily coronavirus cases—a statistic that dented oil demand and pressured oil prices.

OPEC+, out of its own necessity, has intervened in the oil market on the supply side of the equation to offset the pandemic-depressed oil demand. And despite the group’s relative success at curbing oil production to prevent excess oil inventories from ballooning before the market fully recovers, India’s booming case counts have prevented oil prices from a quicker recovery.

This has put even more pressure on OPEC+ to perform to meet market expectations. But there is no doubt a shift in the momentum of the oil markets. Indeed, oil prices have recovered somewhat in recent months, and the overwhelming majority of oil experts and analysts think this trend will continue.

The question isn’t whether the market will improve. The question is how quickly will it improve, and where will that recovery peak.

Lockdowns in Europe add another unknown element into the oil price mix. A month ago, Europe renewed many of its lockdown restrictions, delaying the oil price recovery. But now, as India is in the midst of its worst COVID-19 surge since the pandemic began, Europe is getting ready to lift those lockdowns. EU officials have submitted this week a proposal to ease summer travel restrictions to its 27 nations. This will increase the demand for jet fuel—a critical component of crude demand.

In the United States, Covid-19 cases are also shrinking while the number of vaccinated grows. As a result, several U.S. states, including New York, are relaxing restrictions. All of this will have a profound effect on the price of crude oil.

But that’s not to say that all analysts agree on what this will do to oil demand, let alone what effect it will have on oil prices.

The IEA, for starters, revised up its oil demand outlook for this year on April 14. By its estimates, oil demand will now increase by 5.7 million bpd this year, reaching 96.7 million bpd. The reason for this upward revision was due to increases in the IEA’s oil demand forecast for the United States and China—the two largest oil importers in the world.

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As of April 6, the EIA saw global oil demand at 97.7 million bpd this year. Compared to Brent prices that were near $65 per barrel in March, the EIA sees not much movement in the price of Brent, estimating $65/barrel in Q2 2021, $61 per barrel in H2 2021, and even worse–$60 per barrel in 2022.

Not even a week ago, Rystad Energy adjusted its oil demand for April down by almost 600,000 bpd. For the month of May, it revised it down by 914,000 bpd, citing India’s demand problems as a result of the pandemic—a situation that would no doubt result in a new inventory glut.

But not everyone is so pessimistic. Goldman Sachs sees things as much rosier, with oil reaching as much as $80 this summer. Its rationale for this positive outlook on oil prices is simple. “The magnitude of the coming change in the volume of demand—a change which supply cannot match—must not be understated.”

Rystad analyst Louise Dickson said that oil demand should still increase by 3 million bpd between now and the end of June, India troubles or no. According to her, oil prices should make their way back to $70 per barrel in the coming months.

UBS sees vaccine rollouts as a major positive for the oil industry. As people return to normal activities and businesses fully reopen, oil demand will cause Brent to increase to $75 per barrel in H2, according to analyst Giovanni Staunovo.

Moody’s has a rather positive view of the timing of an oil price rebound as well, citing pent-up consumer demand that will propel forward a global economic recovery. But their medium-term price range is still capped at $65 per barrel. Moody’s sees this economic recovery as hastening a rebound in oil demand through the end of this year and the beginning of next year.

The outlook may be uncertain, but the current trend is definitely one of drawing down oil stocks—a sign of increased oil demand while OPEC+ continues to restrict output. In the highly visible U.S. oil market, for example, commercial crude inventories have finally retreated back to the five-year average for this time of year at 493 million barrels.

India’s virus explosion will not prevent an oil price recovery. But it very likely that it will slow the recovery well into the second half of this year or even the beginning to middle of next year.

If that turns out to be the case, that’s a long time for OPEC+ members to continue their output restrictions while demand takes its sweet time recovering.

Oil price, by Julianne Geiger, May 13, 2021

Exxon Retreats from Oil Trading in Pandemic as Rivals Made Fortunes

Exxon Mobil’s effort to build an energy trading business to compete with those of European oil majors unravelled quickly last year as the firm slashed the unit’s funding amid broader spending cuts, 10 people familiar with the matter told Reuters.

Exxon Mobil’s effort to build an energy trading business to compete with those of European oil majors unravelled quickly last year as the firm slashed the unit’s funding amid broader spending cuts, 10 people familiar with the matter told Reuters.

The cuts left Exxon traders without the capital they needed to take full advantage of the volatile oil market, these people said.
The coronavirus pandemic sent prices to historic lows — with US oil trading below zero at one point — before a strong rebound.

That created an immense profit opportunity for trading operations willing to take on the risk.

Exxon instead systematically avoided risk by pulling most of the capital needed for speculative trades, subjecting most trades to high-level management review, and limiting some traders to working only with longtime Exxon customers, according to interviews with 10 former employees and people familiar with Exxon’s trading operation.

Traders were restricted to mostly routine deals intended as a hedge for Exxon’s more traditional crude and fuel sales rather than gambles seeking to maximise profit, four of the people said.

The trading retreat came after Exxon had worked in the previous three years to bolster its trading unit with revamped facilities, high-level hires and new tools to help traders take on more risk.

The company’s cautious strategy in the pandemic sparked the exodus of some of those senior-level new recruits, along with Exxon veterans, as the company downsized the department amid broader spending cuts, according to the people familiar with its trading operation.

They were careful with capital during a period of time when they maybe shouldn’t have,” one trader who left Exxon in the last year said of its management.

Exxon’s trading retreat came as the company overall posted a historic $22.4bn net loss in 2020.

Exxon does not separately report the performance of its trading unit, Reuters was not able to determine the trading department’s overall profit or loss, or the specific reduction it made in capital available for speculative trading.

Some of Exxon’s biggest rivals made enormous trading profits last year as their traders bought oil and stored it when prices plunged, then sold it at higher prices for future delivery.

Rival Royal Dutch Shell said in March that it doubled its 2020 trading profits to $2.6bn over the previous year, BP Plc’s trading arm earned about $4bn, a near record, Reuters reported previously, based on an internal BP presentation. Such profits helped both companies offset massive losses from a collapse in fuel demand and prices as the pandemic curtailed travel worldwide.

Exxon declined to comment on whether it scaled back speculative trading or reduced the department’s capital and staffing.
An Exxon spokesman said its trading team continues to have a “broad footprint.”

We’re pleased with our progress over the past couple of years,” said spokesman Jeremy Eikenberry.

The cutback in Exxon’s trading operation comes amid broader setbacks. The firm’s stock, after hitting its lowest level in nearly two decades last year, was removed from the Dow Jones Industrial Average, an index of the top 30 US companies.

The firm’s cash flow declined sharply, and its debt rating was cut two notches in 12 months.

Exxon said in October that the firm would eliminate 14,000 jobs, about 15% of its global workforce, by the end of 2021.
Among the belt-tightening measures: asking US office workers to empty their own trash bins, two sources said.

Top oil trading firms make money by buying and selling oil to take advantage of price differences in different markets, a strategy known as arbitrage.

They also speculate on futures contracts, betting on whether the oil price will rise or fall by specific dates, the big players include trading units at major oil producers such as BP, as well as specialized merchants such as Trafigura AG.

The risks are high, but successful trading desks can deliver returns of 20% to 25%, much higher than other parts of the oil-and-gas business, estimated Andy Brogan, a partner at advisory firm EY and leader of its oil-and-gas practice, in an October EY publication.

Exxon, the largest US oil producer, has historically viewed trading skeptically and limited its activity.

After Darren Woods became CEO in 2017, however, he broke with tradition and sought to build up the company’s small trading unit.

The company began hiring consultants, recruiting veteran traders and revamping its trading floors in Spring, Texas, and Leatherhead, England

Among the hires were well-regarded traders and marketers from firms including commodity trader Glencore Plc and US refiners Andeavor and Phillips 66.

Exxon equipped the expanded staff with risk management tools to help trading executives assess potential losses, laying the foundation for a bolder strategy, two people familiar with the operation said.

CEO Woods initially pledged last March that the firm would “lean into” the oil-market decline by continuing major investments across the company.
He reversed course a month later, ordering broad spending cuts as oil fell below $30 a barrel.

Woods vowed to protect a $15bn-a-year shareholder dividend as Exxon’s stock price tumbled.
By contrast, Shell and BP reduced their dividends.

Exxon’s decision contributed to deep spending cuts and heavy borrowing across the US oil giant, which took on about $21bn in debt last year

The quick retreat of Exxon’s revamped trading desk underscores the firm’s longstanding aversion to risk, said Anish Kapadia, director of energy at Palissy Advisors.

The trading business is a risk business,” he said. “That has never been one of Exxon’s fortes.

Exxon cancelled an early 2020 trading strategy meeting at Exxon’s Irving, Texas, headquarters.
After that, “everything went on hold,” said one person close to the company.

The oil-market collapse in April triggered a working capital freeze in the trading group, a former Exxon trader told Reuters.

As cost-cutting continued throughout 2020, the trading operations in Texas and England began sending expatriate workers back to their home countries to save on allowances for housing, cars and tuition benefits, said two people familiar with the moves.

Exxon’s financial woes and restrictions on trading led to the exodus of many department staffers, including senior traders and managers, according to three former trading employees and others familiar with the operation

Exxon laid off some trading employees and offered others early retirements or severance packages, the people said, while more staffers left through attrition.

Reuters could not determine the total number of departures.

Among the prominent departures were Exxon veteran Steve Scott, who led Exxon’s British crude oil trading operation in Leatherhead, people familiar with the matter said.

They also included Ben Knowles, who was behind Exxon’s exports to Europe and Asia; and Nelson Lee, who while at oil producer BHP Billiton orchestrated some of the first exports of US crude in decades before joining Exxon in June 2018

Scott and Knowles could not be reached for comment. Lee declined to comment.