Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Big trade houses see persisting oil stocks bubble

CommoditiesSep 07, 2020 10:35PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Crude oil storage tanks are seen from above at the Cushing oil hub in Cushing

By Julia Payne

GENEVA (Reuters) - Trading firms enjoyed an unprecedented boom in the first half of 2020 due to extreme volatility caused by the COVID-19 pandemic but the market's direction now looks less certain due to high stocks and tepid demand recovery.

"The market is more complex and nobody knows when demand will come back. Financial investors are piling into second half of 2021 or December 2021 (oil futures contracts) on the assumption demand will be back then," Marco Dunand, chief executive of Mercuria Energy Trading, told Reuters.

"Coming into the fourth quarter, the expectation was that we should be drawing 3 to 4 million barrels per day of crude and products from stocks but the market is not drawing that."

During the peak period of lockdowns in March and April, traders were forced to hastily store an additional 1 billion barrels of crude and refined products as oil demand cratered. Eventually, OPEC and other major producers announced record output cuts that helped oil prices rebound.

Economic activity began picking up in June but the recovery has flatlined. Some possible COVID-19 vaccines are undergoing trials but meanwhile, countries have been forced to re-impose some restrictions to stop the spread of the virus.

"We see people starting to do floating storage again ... It will be a problem at some point as we have a massive overhang," Dunand said.

"Crude and distillate stocks in particular are building ... It's a bubble mess."

PATCHY RECOVERY

China is the bright spot in oil markets but its recovery and that of the rest of the world is uneven and not enough to consume the overhang.

The United States in particular still has major unemployment and a growing eviction crisis that will likely cause a cascade of unemployment as spending stutters, Saad Rahim, chief economist at trading house Trafigura, said.

Rahim expects more refinery run cuts particularly if China starts exporting products again, namely gasoline. The summer driving season in the northern hemisphere was lacklustre and last week, middle distillates margins crashed to the lowest level since the early 2000s. Distillates like diesel can account for up to half a refinery's output.

"For once, you can be bearish both crude and distillates because of runs, which normally is not the case. Refinery runs aren't going to continue recovering so that is a problem for crude," Rahim said.

Big trade houses see persisting oil stocks bubble
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Fairway TradeUS
Fairway TradeUS Sep 07, 2020 7:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Sooooooooo is oil prives foing to stay depressed?
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email