Login   |   Register   |  Contact Us

Crude Balance Revisions

March 11, 2022

The latest data from JBC Energy reveal the difficulties OPEC and allies have been facing to produce up to their assigned quotas, with the exception of core members such as Saudi Arabia and Russia.  After a 350,000 b/d global balance deficit in January, and with demand at the refinery level not slowing down, the expected February surplus came only up to a meager 89,000 b/d (Figure 1).  Combined with the very high crude prices throughout the month, there was little to no incentive to build up inventories and support crude tanker demand.

The war in Ukraine which began late February has put Russian crude in the spotlight with the US banning imports and many market participants self-sanctioning (at least for now).  From a fundamentals perspective, Russia is expected to continue producing crude according to its OPEC+ quota unless pressure from sanctions and unsold barrels lead to self-regulation of production – something unlikely for the short term.

With that, the focus shifts back to OPEC and whether or not it will change its policy going forward.  With the current production increases in place, the inventory buildup for the first half of the year is not likely to surpass 100,000 b/d (Figure 1), with prices of oil likely sustained at high levels.  We note here that besides policy, structural factors such as lower output from Iraq in March and planned maintenance in the Caspian region for April-May (JBC Energy) are likely to prevent the organization from shifting gears in the short-term.  Finally, the return of Iran remains open although recent reports want the talks to have stalled due to the conflict in Eastern Europe.  Even if a deal was signed today though, it would probably require at least three months for Iranian barrels to show up in the global markets. 

With everything else (i.e., OPEC, Iran and US Shale) remaining the same, the question is what lasting impact the current volatility and Russia sanctions will have on crude tanker demand.  We noted last week that close to 1.3 million b/d of Russian waterborne crude could be at risk with Europe the main region that will have to urgently replace those.  Overall, a lot of these barrels could be substituted by local crudes (North Sea, Libya) as well as increased volumes from West Africa and the USG.  However, our analysis also suggests that increased Russian flows to China will necessitate “backing out” other imports, with the Atlantic Basin > China an obvious disrupted flow.

Figure 1 – Global Crude Supply, Demand & Balance

Source:  McQuilling Services