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Ship tracking data from Bloomberg shows that 83 supertankers carrying around 166 million barrels of oil are headed to China, which has stockpiled an impressive 787,000 barrels a day in the first quarter of 2016—the highest stockpiling rate since 2014.
While the world was speculating about oil prices plunging to $20 and $10 per barrel, China was busy stockpiling its reserves.
The chart below shows an increase in imports as crude prices collapsed. Since the beginning of this year, China has imported a record quantity of oil.
Access to energy sources at low prices will continue to drive the world’s political agenda, as energy is a component as well as an object of national power. The world’s primary energy consumption from commercial sources of energy has grown from approximately 8,600 million tons oil equivalent (mtoe) to 13,000 mtoe from 1995 to 2015 and is forecasted to grow approximately by the same amount to 17,300 mtoe by 2035.
Figure 1: World’s share of commercial energy consumption (1995–2035)
The weekend meeting between many OPEC and non-OPEC producers has helped spur the recent gains in the price of oil. We are concerned that market may be getting ahead of itself.
After a 50 percent rally in oil prices between February and March, crude has retreated a bit as of late. The upcoming OPEC-Russia meeting in Doha looms over the markets, but few expect the outcome to have any material impact on supply and demand. Global supply still exceeds demand, but there are solid signs that the overhang is finally starting to ease. Storage levels are high, but are expected to come down.
It is possible that prices may jump again but they will almost certainly stay below US$50 per barrel throughout 2016. Speculation may increase prices but, without any substantive changes in supply-and-demand, any rally will be short-lived — as has happened several times since August 2015. The fundamental changes in the global oil market necessary to solve the current oversupply problem, unfortunately, still seem a long way off.
Just over three months after the authorities lifted the four-decade ban on crude oil exports, the U.S. has actually exported less this year than it did over the same period the year before, when the ban was still in place.
According to Clipper Data market intelligence cited by the Financial Times, we’ve seen a 5 percent decline in U.S. crude oil export volumes since the beginning of this year. The data suggests that on average we are exporting (waterborne) 325,000 barrels per day now, compared to 342,000 barrels per day during the first months of 2015.
Oil prices have climbed by about 50 percent from their February lows, topping $40 per barrel. However, the rally could be reaching its limits, at least temporarily, as persistent oversupply and the prospect of new shale production caps any potential price increase.
Oil prices have shown signs of life over the past few weeks, as production declines in the U.S. raise expectations that the market is starting to adjust. As a result, Brent crude recently surpassed $40 per barrel for the first time in months.
The price of oil is seeing its biggest decline today since February 23. The ostensible reason is that Iran once again reiterated it would only consider capping its output after it reached four million barrels a day, its pre-sanction output.
