Oil glut drags down fu­tures

Global stocks not com­ing down as fast as peo­ple hoped they would


The real world of oil trad­ing — where ac­tual car­goes are bought and sold — is do­ing lit­tle to help the hedge funds

Saudi Ara­bia, Rus­sia and other big pro­duc­ers are try­ing to clear a global crude glut, but three months into the ef­fort the phys­i­cal oil mar­ket is still sig­nalling plen­ti­ful sup­plies.

In West Africa, lack­lus­tre de­mand means An­golan crude car­goes are sell­ing more slowly than in pre­vi­ous months. In Amer­ica, a closely watched price re­la­tion­ship be­tween the crude in a pro­duc­tion re­gion in Texas and a stor­age hub is flash­ing over­sup­ply too.

While few ex­pected the Or­ga­ni­za­tion of Petroleum Ex­port­ing Coun­tries and 11 other pro­duc­ers to elim­i­nate a sur­plus overnight, the oil glut pun­ishes bulls by drag­ging down fu­tures mar­kets that are ul­ti­mately an­chored to phys­i­cal price bench­marks.

An­gola, Kaza­khstan

The sell-off in fi­nan­cial mar­kets comes as the phys­i­cal mar­ket shows con­tin­ued signs of over­sup­ply. Car­goes from An­gola for load­ing in April are sell­ing more slowly than in pre­vi­ous months, ac­cord­ing to four traders. Vi­tol Group BV re­cently re­leased bar­rels of Nige­rian oil it had been stor­ing in South Africa, adding im­me­di­ate sup­plies to the mar­ket. To­tal SA fol­lowed suit this week.

North Sea Ekofisk crude dropped to a 22-month-low against Dated Brent, a global bench­mark that ul­ti­mately helps de­fine the price of oil on the ICE Fu­tures Europe ex­change in Lon­don re­cently. Mean­while, Kaza­khstan’s Kasha­gan field in Fe­bru­ary boosted pro­duc­tion to an es­ti­mated 170,000 bar­rels a day, just five months af­ter start up, the Paris-based In­ter­na­tional En­ergy Agency said in a monthly re­port on Wed­nes­day. It’s not just in seaborne mar­kets where gluts are en­dur­ing. West Texas In­ter­me­di­ate crude at Mid­land, Texas -- a pric­ing point for boom­ing sup­plies from the Per­mian shale basin -- is the cheap­est since Septem­ber rel­a­tive to the same crude in an­other key pric­ing point, the stor­age hub of Cush­ing, Ok­la­homa, ac­cord­ing to data com­piled by Bloomberg. The WTI price dif­fer­ence be­tween Mid­land and Cush­ing, which has swung from plus$1.40 a bar­rel in De­cem­ber to mi­nus$0.85 a bar­rel now, is due to main­te­nance at a re­fin­ery that con­sumes the crude, ris­ing Per­mian out­put and lower ex­port de­mand due to com­pe­ti­tion from West African crude.

The des­ti­na­tions for crude car­goes pro­vide ev­i­dence of the over­sup­ply, ac­cord­ing to JBC En­ergy GmbH, an oil con­sul­tant based in Vienna.

OPEC out­put cuts

Sup­ply is still plen­ti­ful across the At­lantic basin as can be seen in the high ar­bi­trage vol­umes tar­get­ing Asia, due in part to a boost in pro­duc­tion in the Mediter­ranean re­gion and Brazil, JBC an­a­lyst Eu­gene Lin­dell said.

Global stocks have not been com­ing down as fast as peo­ple hoped they would.

Even so, many fi­nan­cial spec­u­la­tors and an­a­lysts re­main up­beat that OPEC and its al­lies will re­bal­ance the mar­ket.

Global stock­piles will de­cline by about 500,000 bar­rels a day in the first half of this year if OPEC sticks to its pledged cuts and all other mar­ket fac­tors re­main con­stant, ac­cord­ing to the IEA.


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