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The United States is expected to play a significant role in the
recovery of oil prices over the coming months, with their crude oil
output falling while demand is rising. This could support the
global oil industry and could potentially drive the surplus of 2020
Q2 into deficit. The impact could reach nearly nine million b/d by
year-end. Meanwhile, China increased its crude oil inventories by
440 million barrels in the first six months of 2020 and has
returned in a big way as a key outlet for US crude exports. Most
recent data by IHS Markit Commodities at Sea
suggests that US crude oil shipped in 2020 Q2 and heading for Far
East and Asia surpassed 1.2 million b/d on average. The increase
has been heavily supported by flows to mainland China from almost
zero in the first quarter.
Chinese buyers have been motivated by discounted US crude and
the need to replace Middle Eastern and Russian barrels in parallel
to the OPEC+ cuts. The current risk is related to the rapid rate at
which China has been building its domestic inventories and the
scenario of a second big wave of COVID-19 which could translate
into unsustainable demand. Apart from China, South Korea has been
the major trade partner of the US in 2020 Q1, with a sharp decline
in May and a noticeable recovery in June. USA exports now seem to
be focusing on two major routes, with flows to Asia dominating in
terms of volumes, while trade with Europe has potential.
Meanwhile, crude oil flows from the USA to European destinations
could prove rather important in 2020 Q3, as several oil refiners
across the continent have been recently avoiding Russia's crude
grade Urals. Russian barrels are more expensive than Brent crude at
the moment, driven by Russia's drastic production cuts as part of
the OPEC+ agreement. The price of Urals increased to a premium on
dated Brent prices in June with expectations for this trend to last
in July, as Russia plans to proceed with deep cut exports from its
Baltic ports. Urals export are expected to stand close to 880,000
b/d in early July based on loading programs. Volumes exported from
Russia could fall to record low levels. With the price of Urals
rising, European refiners are now understood to be considering
alternative options including a shift to West Texas Intermediate
from the United States. This could stop the trend observed last
quarter, during which flows from the USA to Europe declined and
fell below 500,000 b/d, according to IHS Markit Commodities at
Sea.
Posted 01 July 2020 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit
