Vol. 26, No.18 Week of May 02, 2021
Providing coverage of Alaska and northern Canada's oil and gas industry

ANS is in solid $60s

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Traders bullish as US and China data offset worries about flagging India demand

Steve Sutherlin

Petroleum News

Over the five trading days ending April 28, Alaska North Slope crude solidly reclaimed a trading range in the upper $60s.

ANS gained 79 cents April 28 to close at $66.99 per barrel, while West Texas intermediate rose 92 cents to a close of $63.86 and Brent closed at $67.27 for a gain of 85 cents.

It was the second straight day of price gains as market analysts joined the Organization of the Petroleum Exporting Countries and its affiliated producers to predict stronger demand coming in summer.

The market shook off concerns over a worrisome rise in COVID-19 cases sweeping across India, Japan and Brazil to post the highest oil prices in a month.

Traders were bullish on U.S. demand as distillate stockpiles in the week ended April 23 fell by 3.3 million barrels to 139.1 million barrels, versus expectations for a 648,000-barrel drop, the Energy Information Administration reported April 28.

“Distillate has been such a stud lately,” Bob Yawger, Mizuho director of energy futures told Reuters. “Between planting season and online truck deliveries you have a nice number in the diesel. Planting season is doing wonders for the distillate market.”

China demand is also robust.

A Bloomberg report April 20 said Chinese traffic and factory activity is surpassing pre-virus levels.

Chinese oil demand in May could be 20% higher than the same period in 2019, said Sengyick Tee, an analyst at Beijing-based SIA Energy.

The positive China news offset signs of strain on India’s refiners.

Indian Oil Corp. is offering to sell gasoline into the spot market - a potential indication of weak domestic demand, Bloomberg reported April 25, adding that refiners are being forced to postpone some planned shutdowns for maintenance as workers are either fleeing or falling ill.

ANS rose 94 cents April 27 to close at $66.20, WTI rose $1.03 to close at $62.94, and Brent rose 77 cents to close at $66.42.

OPEC+ decided in a surprise meeting April 27 to stick with it plan to gradually relax output curbs starting in May.

The 16th OPEC and non-OPEC Ministerial Meeting of the Declaration of Cooperation highlighted the continuing recovery in the global economy, supported by unprecedented levels of monetary and fiscal support, while noting that the recovery is expected to pick up speed in the second half of the year, OPEC said in a post meeting release, adding that “COVID-19 cases are rising in a number of countries, despite the ongoing vaccination campaigns, and that the resurgence could hamper the economic and oil demand recovery.”

Goldman Sachs Group Inc. remains bullish on prices, forecasting an unprecedented jump in global oil demand as vaccination rates rise and travel resumes.

Goldman said in a note to clients that it expected the biggest jump in oil demand in history at 5.2 million barrels per day over the next six months, Reuters reported April 28.

Easing of international travel restrictions in May would hike jet fuel demand by 1.5 million barrels per day, Goldman said.

Goldman sees oil prices rising to $80 per barrel, FXStreet reported.

“The magnitude of the coming change in the volume of demand - a change which supply cannot match - must not be understated,” Goldman said. “Expect greater mobility, aided by vaccines, a seasonal upswing in transportation, manufacturing and construction, beginning now and accelerating into June.”

India restrictions trim global demand

India’s COVID-19 troubles prompted Rystad Energy to downgrade its short-term global liquids demand estimate by 575,000 bpd of oil liquids demand in April and 915,000 bpd in May 2021.

In light of OPEC+ bringing back much of its curtailed oil output, the drop in India will result in a global oil liquids supply surplus of 0.9 million bpd in April and 1.4 million bpd in May 2021, Rystad said.

Rystad said its revisions are supported by real-time data, which show traffic in major cities like Mumbai, Bangalore and New Delhi “plummeting to nadirs experienced during the first wave of lockdowns in India a year ago.”

“On top of night and weekend curfews, many states have imposed strict lockdowns overnight, shutting down non-essential businesses and limiting public transport,” Rystad said.

So far, the federal government has not reimposed a nationwide lockdown that was put in place last year, yet traffic in Mumbai, for example, has stalled, with activity levels at 45% of pre-pandemic levels, compared to activity levels at 35% of pre-pandemic levels in April 2020, the consultancy said.

Overall, road traffic in India is at 87% of pre-pandemic levels, Rystad said, adding that its mobility stringency index shows that Indians are just as restricted in their movement now as they were back in April 2020.

“We were expecting Indian liquids demand to total 4.84 million bpd in May 2021, but the Covid-19 case surge knocks this down to 3.93 million bpd,” said Louise Dickson, Rystad senior oil markets analyst. “As infections continue to rise and its health system is overwhelmed, India’s oil demand could lose more ground going forward, making further downgrades possible, both on magnitude and duration.”

The demand loss in India comes at a time when many other oil producers globally were planning to increase output, Rystad said.

“The most significant upward supply risk comes from Iran, for which we have increased our supply expectations given increased domestic demand and growing exports,” Rystad said. “We now see Iranian crude and condensate production creeping up more quickly to year-end 2021 levels as exports have enabled higher production recently, but we keep our base case assumption of a full return to the market/sanctions lifting around the second quarter of 2022, enabling the rise to full utilization of its oil production capacity of 4.2 million bpd by the first quarter of 2023.”

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