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.
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.