Gasoline Supplies Tightening?
June 19th, 2020
Reports of COVID-19 rebounding in some states and countries hasn’t been enough to derail a bounce back in fuel demand. As countries and states emerge from lockdowns, demand is good and optimism abounds. Equities continue to trade higher and the energy market follows right along.
Bloomberg News reports gasoline futures in the U.S. moved into backwardation for the first time in three months on Thursday. That’s a bullish signal indicating supplies are tightening as the summer driving season gets under way. Meanwhile, swaps in the North Sea market, which prices much of the world’s crude, jumped on Thursday. Traders posted several bids for cargoes but only one willing seller emerged. Reuters reports, “In a further sign of market recovery, Brent on Thursday moved into backwardation, where oil for immediate delivery costs more than supply in the future, for the first time since March.”
The OPEC+ group has promised much better compliance to quotas. Some habitual cheaters have promised better adherence to their quotas. This news is supporting crude prices as talks of tightening supplies becomes more commonplace.
Oil Use Rising
Vitol reports global oil use rose by 1.4 million barrels every week in June. That takes the month’s growth to more than 5.5 million barrels. Trafigura states that global oil demand is now about 10 million barrels a day below pre-crisis levels. China’s oil demand is getting close to where it was prior to the virus outbreak. Demand in the United States and Europe remains at about 90% of pre-virus levels.
Some energy experts are predicting a very tight oil market later this year. They say it is unlikely that global economies will shut down again. Some argue that as global oil demand is recovering exceptionally well and global production continues to fall dramatically, it sets up potential for a tight market, no matter what OPEC or IEA reports.
The Joint Ministerial Monitoring Committee reports that OPEC+ compliance was 87% in May. The committee warned Iraq and Kazakhstan came in short but said the two countries have already submitted compensation schedules to comply with output cuts by June 22. Many energy experts now think the oil output cut agreement will continue well beyond July 31.