Menu
4 min read
Three months into the war, oil prices for ready delivery are 23% below 13-Apr. There is limited stress in financial markets, belying widespread fears (including ours) of significant economic disruption. EIA and IEA data suggests 14mbpd inventory drawdown ex-West Asia in April: 41% of promised IEA SPR release is done; China is using inventories too. These have brought prices down near-term, limiting demand destruction to just 1.5% vs. Feb, and pushed prices up for 9/12M deliveries (rebuild stocks later). Even as rising bond yields reflect higher-for-longer oil prices, and on paper stocks can last several months at current release rate, we monitor product-geography clusters for signs of disruption.
Large inventory drawdown limited demand destruction in Apr; crisis delayed
Estimates by US Energy Information Administration (EIA) and the IEA show large inventory drawdowns in April. EIA models estimate 14.3mbpd (mn barrels/day) drop in supply vs. Feb and 1.5mbpd in demand. Thus, vs. a 4.2mbpd inventory build in Feb, it fell at a record 8.6mbpd in Apr. The IEA, tracking physical trends, found an inventory draw of 5.3mbpd in Apr. This could be revised higher (e.g., March revised to 4.3mbpd vs. 2.8 earlier). Worryingly, as storage tanks fill up in West Asia (unhelpful for market balancing currently, though can affect normalization later), IEA estimates a 14mbpd draw ex-W. Asia.
41% of SPR promised release completed by 8-May; China also releasing stocks
The stock decline accelerated in April: of the 400mn barrels of IEA members’ (mostly OECD) strategic reserve commitment, 41% had been released till 8-May, with an acceleration after the US blockade starting 13-Apr to 4.4mbpd. Among non-OECD countries, China, which built inventory till March also dipped into its stock in April; the MoM swing could be worse than IEA’s estimated 1.5mbpd as China’s April imports fell by 3.5mbpd. Thus, Apr average was 6.4mbpd for OECD and China. At these release rates, 300-900 days of oil and product inventory exists for various regions.
Not much demand destruction yet, as near-term prices remain capped
Higher production in the Atlantic/Russia and refinery supply response to high margins also helped market rebalancing, keeping dated Brent 23% below 13-Apr levels. EIA estimates oil demand reduction till Apr was only 1.5mbpd (-1.5% vs. Feb), or 0.5% of global energy. Even including natural gas, this is <1% of total energy, likely why financial markets remain largely unstressed. While US EIA estimates demand reduction globally was mostly in Asia (ex-China) in energy-proxies like fertilizer, even US farmers are badly affected. Oil prices for Dec-26/Mar-27 delivery are up 6%/4% vs. 13-Apr, reflecting the need to rebuild inventories once flows through the Strait of Hormuz resume.
To read the full report Click Here
