Monday, December 18, 2017

What Will Global Oil Storage Balances Look Like In 2018?

Oil prices started the week pulling back from last week's OPEC frenzy. On the news front, there wasn't anything meaningful other than the fact that China's crude oil imports of 9.05 million b/d for November was the second highest on record.

In our weekly oil storage report this week, we noted that the balance towards the end of the year will be very positive (crude draws wise). In addition, Cushing balances have been drawing as issues in TransCanada Keystone was limited in flow due to a spillage.

Normally, as you will see in the chart below, Cushing balances build into year-end as refineries park inventories in Cushing and other areas to lower tax liabilities. That won't be the case this year with TransCanada's Keystone outage lowering flows.

So, going into year-end 2017, US crude storage will draw, and with total liquid stockpile's year-over-year comparison accelerating to the downside, what does that mean for global oil balances in 2018?

Global Oil Storage Balances in 2018

The big worry for the consensus at the moment is - what happens to global oil storage balances in the first three months (Q1) of 2018?

On average from the data we have compiled, consensus is estimating somewhere around ~400k b/d of storage builds globally. The input to arrive at a build is that non-OPEC supplies driven in large part by 1) US shale and 2) Canada.

From our global oil storage balance analysis, the assumptions for a storage build in Q1 2018 appear to be standing on thin ice. One of our contributors, Open Square Capital, has already discussed this in this article, "Oil Inventories Early 2018: Why The Consensus Is Out Of Touch."

Now this is not us bashing Goldman or anything, but in an oil market report they published in October, they had Q4 2017 reporting a build, which from all angles of analysis, it was as a bad forecast as saying something is blue when it's clearly green. But we digress, they are now expecting a draw in Q4 2017, two months into Q4 (thumbs up Goldman).

But will global storage actually build to the tune of ~500k b/d like Goldman thinks?

The issue with an estimate like the one provided by Goldman is that a build of 500k b/d can swing easily into a deficit. For example, Goldman has US oil production sitting at 9.925 million b/d in Q1 2018. A 100k to 200k b/d swing either way would push global storage estimates to a range of +300k b/d to +700k b/d.

Then we have Brazil, which Goldman is currently forecasting at ~2.8 million b/d, when October production figures just came in at ~2.63 million b/d.

 What we find interesting amongst the consensus is that global, identified storage draws are now averaging right around ~-1 million b/d for Q4 2017. We know demand normally drops 600k to 700k b/d in Q1, so for global storage to average a build of ~+400k b/d, we would need a supply increase of 700k to 800k b/d.

Is that realistic? We will let you decide.

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