Dear valued readers,
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Blake
Founder, Gallatin Research
Let’s dive into this week.
We FINALLY broke out today after more than a month on the 4 hour chat. Are we out of the woods? Not entirely. But this is a big step in the right direction as our fundamental bullish stance on oil for 2023 starts to take shape.
Next week:
We are looking to expand higher into next week as we make the push to $85 going into summer driving season. But first, we need to break that pesky $82.50 level where we have failed 5 times since early December. Bulls have done their job in Q1 so far. We believe this will continue to be the case.
Inventories
US DoE Crude Oil Inventories (W/W) 24-Feb: +1.166M (est +1.900M; prev +7.647M)
Distillate: +179K (est -500K; prev +2.698M) -
Cushing: +307K (prev +700K) - Gasoline: -874K (est -1.000M; prev -1.856M) -
Refinery Utilization: -0.10% (est -0.30%; prev -0.60%)
IEA Oil Market Report Summary
Global oil demand is set to rise by 2 mb/d in 2023 to 101.9 mb/d, with the Asia-Pacific region (+1.6 mb/d) dominating the growth outlook, driven by a resurgent China (+900 kb/d). Jet/kerosene demand is expected to increase by 1.1 mb/d to 7.2 mb/d, 90% of 2019 levels.
World oil supply was steady in January at around 100.8 mb/d, after a sharp decline at the end of 2022 led by the US and Saudi Arabia. Global output is expected to grow by 1.2 mb/d in 2023, driven by non-OPEC+ and with supply from OPEC+ projected to contract due to Russian sanctions.
Global refinery throughputs fell 730 kb/d in January, with further declines expected in February due to scheduled maintenance. Product cracks rallied on supply concerns in the US and ahead of the EU embargo on Russian products.
Russian oil exports rose to 8.2 mb/d in January ahead of the EU embargo and G7 price cap on refined products taking effect, with crude oil exports increasing by nearly 300 kb/d m-o-m despite a further decline in shipments to the EU. Export revenues are estimated at $13 bn, marginally higher than in December but down 36% on a year ago.
Global observed oil inventories tumbled by 69.8 mb m-o-m in December, but were still 40.5 mb higher than a year ago and 126 mb above the low reached in March 2022. OECD industry stocks fell by 18.1 mb in December to 2 767 mb, 95.7 mb below the five-year average.
North Sea Dated rose by $2.50/bbl m-o-m to $82.86/bbl in January, its first monthly increase since October, as economic sentiment marginally improved following China's reopening. Forward curves and physical differentials were largely stable, except for in the US where refinery outages propelled gasoline margins higher, while at the same time weighing on WTI prices. Freight rates fell across the board.
Fundamentals
How much is a barrel of Russian oil worth?
With Russia's invasion of Ukraine, the status quo has been disrupted everywhere, including the oil market. As oil flows are realigned, both in terms of crude oil and products, transparency also suffers, which has a negative impact on the global oil trade. Oil trade is being influenced on all sides, to put it another way. Market forces' importance is dwindling quickly. In the guise of national security and political retaliation, strategic stockpiles are being employed to regulate the market, price restrictions, boycotts, and buyers and sellers are reluctant to deal with conventional trading partners. Energy is being weaponized back and forth. Oscar Wilde once said that a cynic understands the worth of nothing but knows the cost of everything. Trying to estimate the price of Russian oil in this chaotic energy market is a useful, if nearly impossible, exercise for two reasons: first, it might offer some transparency and second, it might shed some light on Russia's energy revenues, which is an important piece of information regarding the potential outcome of the war.
Before the conflict started, Urals, Russia's principal export blend, was valued at $2–4/bbl less than the European benchmark. The discount eventually dropped below
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