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ARA Oil Product Stocks Fall Close to Seven-Year Lows (week 10 – 2022)

Independently-held oil product inventories in the Amsterdam-Rotterdam-Antwerp (ARA) area fell during the week, approaching the seven-year low recorded at the end of February, according to the latest data from consultancy Insights Global.

Inventories of all surveyed products except naphtha declined amid steep backwardation in the underlying crude futures market. Europe’s middle distillate markets have been affected particularly severely by the response on western governments to Russia’s military action in Ukraine, but there was little sign of a drop in Russian flows into ARA during the week, with some spot cargoes traded prior to sanctions being imposed on Moscow able to finish their journeys unhindered.

Low water levels, rising bunker fuel prices and firm demand supported freight rates on the river Rhine. The prospect of a further fall in water levels exerted pressure on traders to move barges inland.

Naphtha inventories rose to reach their highest levels since September 2021. Tankers carrying naphtha arrived in ARA from Algeria, Libya, Norway, Russia, the UK and the US.

Regional buyers are likely to turn to Mediterranean cargoes to replace naphtha from the Russian Baltic, which is becoming increasingly difficult to import because of finance restrictions and challenges securing vessels.

Stocks of all other products fell. Gasoil inventories dropped, with cargoes arriving from Russia and departing for the UK. The middle distillate markets are especially dependent on imported Russian cargoes, and European buyers are turning to sellers elsewhere to meet any shortfall.

Gasoline stocks fell to reach their lowest since January. The blending of summer-grade cargoes increased the volume of gasoline and components moving around the ARA area on barges, prompting some discharge delays. Seagoing tankers arrived in ARA with gasoline from Denmark, France, Portugal, Spain and the UK, and departed for Angola, Canada, South Africa, the UK, the US and west Africa.

Jet fuel stocks declined, with no cargoes arriving in ARA and at least one departing for the UK. Fuel oil stocks dropped, with cargoes arriving from Estonia, France, Ireland and Russia, and departing for the Mediterranean and west Africa.

Reporter: Thomas Warner

Saudi Arabia Significantly Raises Crude Prices To Key Market Asia

Saudi Aramco has lifted its price to Asia for its flagship crude oil grade, Arab Light, to $4.95 a barrel premium over Oman/Dubai crude, off which Middle Eastern producers price their oil going to Asia, the oil company said on Friday.

It is the largest differential for Arab Light ever and a daring move for the world’s largest crude oil exporter.

The increase in price for Arab Light to Asia next month is a staggering $2.15 per barrel.

Aramco also raised the OSP of Arab Light to Europe and the United States, at premiums to $1.60 per barrel to ICE Brent, and $3.45 over the Argus Sour Crude Index, respectively.

The price increase comes as no surprise. Brent crude prices have increased $17 a barrel in the last week alone, and the Asian oil market has grown exceptionally tight as buyers there look for more and more oil from the Middle East as some have grown wary of purchasing Russian crude oil.

Saudi Arabia typically sets the pricing trends for the other Middle Eastern oil producers and is seen as a bellwether for which way the market is heading, and is interpreted as a signal that Saudi Arabia believes oil demand will remain strong, and will continue to tighten.

Saudi Arabia has increased more than just Arab Light. The price for all Saudi crude grades to Asia will increase for April, as well as all Saudi crude grades to the United States and Europe.

The price increases come as OPEC+ met earlier this week and determined that no additional output increase was necessary to stabilize the market, agreeing to an output increase of 400,000 bpd as previously planned.

Oilprice by Julianne Geiger, March 7, 2022

Independent ARA Stocks Rise From Seven-Year Lows (Week 9 – 2022)

Independently-held oil product inventories in the Amsterdam-Rotterdam-Antwerp (ARA) area rose during the week to 2 March, having fallen to seven-year lows a week earlier, according to the latest data from consultancy Insights Global.

Inventories of all surveyed products rose on the week, albeit from a notably low base. Steep backwardation particularly in the Ice gasoil forward curve brought inventories to their lowest since December 2014 at the end of February.

But market participants are now building stocks despite high prompt premiums across the barrel, owing to sudden uncertainty in the immediate future of supply from Russian outlets.

Northwest Europe is heavily dependent on some refined products from the Russian Baltic, and traders in the region have been working to guarantee their supply both from Russia and elsewhere while there are still spare cargoes on offer. Gasoline inventories were probably also supported by the need to begin producing summer-grade gasoline for export to the US.

Naphtha is a key blending component in summer-grade gasoline, and naphtha inventories almost doubled on the week, as cargoes arrived from Algeria, Greece, Norway, Russia, Spain and the US.

Gasoline stocks were supported by the arrival of cargoes from Finland, France, Germany, Norway, Spain, Sweden and the UK. The increase in gasoline blending activity prompted loading delays of several days for gasoline and component barges, particularly around the key blending hub of Amsterdam.

Gasoil stocks rose, despite barge flows from the ARA area to destinations along the river Rhine rising to four-week highs. Falling Rhine water levels have prompted some market participants inland to bring in gasoil from the ARA area despite the steep backwardation, purely in order to guarantee supply.

Seagoing tankers arrived in the ARA area from Saudi Arabia and Turkey, and departed for Denmark, France and west Africa.

Fuel oil inventories rose, supported by the arrival of cargoes from Estonia, Poland, Russia and the UK. No cargoes departed for destinations east of Suez, but tankers did depart for west Africa and the Mediterranean. Jet fuel stocks rose, and tankers departed for Sweden and the UK.

Reporter: Thomas Warner

Why Aren’t US Crude Exports Rising to Meet Demand?

Several factors suggest the time is ripe for a surge in US crude exports, but volumes have not changed much so far.

Global benchmark Brent crude is trading some $4.50 above US marker West Texas Intermediate (WTI), which is priced in Cushing, Oklahoma, which well exceeds the cost of transport from Cushing to export terminals along the US Gulf Coast. The US downstream is also in heavy maintenance and flows of Russian petroleum to Europe are under threat.

And yet, according to ship brokers and tanker trackers, US crude exports have not jumped.

Cushing Constrained

One major reason is that physical crude flows from Russia seem to be holding up for now.

Market players said the disparity between a wide Brent-WTI spread on the one hand and flat US crude exports on the other reflects a familiar dynamic — namely, that Cushing is constrained and to a large degree divorced from global markets at a physical level.

“Even if demand comes from overseas, the capacity out of Cushing is set [by the Seaway and Marketlink pipelines to the US Gulf Coast],” one Texas-based broker told Oil Daily, adding that he had virtually never seen either pipeline operating at less than the high 90% capacity.

That means that even though a potential disruption to Russian crude flows to Europe has helped widen the Brent-WTI differential, “Cushing can’t be responsive,” the broker said. That in turn widens the spread further.

In addition, several experts noted, inventories at Cushing are close to their minimum operating levels — realistically, very few barrels can leave the hub.

The Houston WTI price assessment is more relevant to export economics, the broker said, echoing statements from several analysts and other market players. Activity in the Houston futures market has picked up recently, but traders say the hub remains geared toward physical oil trade.

“If you look at the prices along the US Gulf Coast, those spreads didn’t widen like Cushing did,” said Andy Lipow of Houston’s Lipow Oil Associates.

Differentials did move, but not at the scale of Cushing WTI’s discount.

Structural Support

The structure of oil’s forward curve plays a role as well. WTI futures are in steep backwardation, with April trading some $2.10 above May and $4.50 above June.

Because Houston is so physical, and because the forward curve is in such steep backwardation, players in that market tend to sell what they have very quickly — they don’t build inventory, as doing so is a money-losing proposition.

“The sellers at Houston have sold their barrels 100%. They haven’t rolled,” the broker said.

In short, the barrels are already spoken for.

Looking Ahead

That’s not to say that US crude exports have no role to play in offsetting potential disruptions to Russian flows. But rather than a dramatic, structural surge, experts say such a development would mark a rearrangement of flows.

“Should the West ban Russian oil sales in Europe, which is highly unlikely, Russia would certainly seek to sell more oil into China by discounting the price,” Lipow said. “That would result in China buying less oil from other suppliers and that oil could be redirected to Europe.”

The same dynamic applies should Russia decide to cut off supplies to Europe.

The Asia-Pacific is the largest foreign regional consumer of US crude exports, and thus US flows there, displaced by cheap Russian barrels, would instead flow to Europe.

In addition, the US is mulling a major release of oil stocks from its strategic petroleum reserve. Market players said they expect the vast majority of any such release to be snatched up by overseas buyers rather than US refiners.

Some market watchers see March as a strong month for US crude exports. Tanker-tracking firm Kpler’s current outlook sees March crude and condensate exports close to February’s levels.

Aramco Closes $15.5bn BlackRock-Led Gas Pipeline Deal

Gas is a cleaner fuel than crude oil.

Saudi Aramco closed a deal to sell a stake in its natural-gas pipelines for $15.5bn and entered into a pact with BlackRock to explore low carbon energy projects.

An investor group, led by BlackRock, acquired a 49 per cent stake in Aramco Gas Pipelines Co. in a lease and leaseback deal in December, according to a statement. The consortium also comprised Keppel Infrastructure Trust, Silk Road Fund, China Merchants Capital, and Saudi Arabia’s state-owned Hassana Investment Co.

BlackRock’s investment comes even as chief executive officer Larry Fink puts pressure on firms to boost environmental, social and governance, or ESG, standards. Gas is a cleaner fuel than crude oil but still contributes to heating the plant.

“Getting to a net zero world will not happen overnight,” Fink said in the statement. “It requires us to shift the energy mix in incremental steps to achieve a green energy future. Bold, forward-thinking incumbents like Aramco have the technical expertise and capital to play a crucial role in this transformation.”

The 20-year arrangement “represents further progress in Aramco’s portfolio optimisation programme and highlights the strong investment opportunities presented by Aramco’s significant infrastructure assets,” according to the statement.

The deal is part of Saudi Arabia’s drive to sell assets and use the money to fund new industries from artificial intelligence to electric vehicles, while also increasing output of both oil and gas. In a similarly-structured transaction in April, Aramco sold a $12.4bn stake related to its oil pipelines to investors including Washington-based EIG.

By Bloomberg, February 27, 2022

Crude Oil at $100 per Barrel, Govt May Release Strategic Petroleum Reserves

New Delhi: To check the volatility and price rise of crude oil, India may release crude oil from its SPR (Strategic Petroleum Reserves). The Russia Ukraine war has disrupted global energy prices. Experts are suggesting that crude oil may hit even $125 per barrel later this year.

All major oil-consuming nations have coordinated to subside the crude price rise. On 23 February, White House press secretary Jen Psaki said that a release of reserves was “certainly an option on the table.” Earlier in November last year. US President Joe Biden has said that the US would release 50 million barrels of oil from the SPR in a bid to lower the fuel prices. The US has mentioned that The SPR release from the US will be executed with close coordination with major energy-consuming nations, including China, India, Japan, South Korea, and the UK.

India is the world’s third-biggest oil importer of crude oil and imports over 80% of its oil needs. At present Indian refiners hold crude oil reserves of 64.5 days. In addition to that, India also holds 39.62 million barrels of crude oil through its Strategic Petroleum Reserve body ISPRL (Indian Strategic Petroleum Reserves Limited). Cumulatively at present India has oil storage for 74 days.

In July last year, the Government approved the establishment of two additional commercial-cum strategic facilities with a total storage capacity of 6.5 MT underground storages at Chandikhol (4 MT) and Padur (2.5 MT) under public private partnership (PPP) mode under phase II of the SPR program. When phase II is completed, it will meet an additional 12 days of India’s crude requirement.

Reuters has reported In Aug, 2021 that India has begun selling oil from its Strategic Petroleum Reserve (SPR) to state-run refiners as it implements a new policy to commercialise its federal storage by leasing out space.

Let’s know more about the Strategic Petroleum Reserves : 

What is Strategic Petroleum Reserve (SPR)

Strategic Petroleum Reserve (SPR) is kept by the government of a particular country or a private industry, to use in case of any crisis or emergency.

India maintains its petroleum reserves through a Government of India Special Purpose Vehicle called Indian Strategic Petroleum Reserves Limited (ISPRL). ISPRL is a wholly-owned subsidiary of the Oil Industry Development Board (OIDB), which functions under the administrative control of the Ministry of Petroleum and Natural Gas.

Benefits of Strategic Petroleum Reserve (SPR)

Petroleum and Natural Gas Shri Dharmendra Pradhan has told parliament that Govt has filled the SPR Strategic Petroleum Reserves to its full capacity during low crude oil prices in April / May 2020, which resulted in national savings for around 5000 cr.

Countries owning biggest Strategic Petroleum Reserves in world  

  • US  – 714 million barrels
  • China – 4000 Million Barrels  
  •  Japan – 314.5 million barrels
  • South Korea – 146 million barrels
  • Spain – 120 million barrels

Zeenews by Abhishek Sankhyayan, February 27, 2022

Independent ARA Stocks Hit Fresh Seven-Year Lows (Week 8 – 2022)

Independently-held oil product inventories in the Amsterdam-Rotterdam-Antwerp (ARA) area fell during the week to 23 February to reach their lowest since December 2014, according to the latest data from consultancy Insights Global.

Inventories of all surveyed products except gasoil fell on the week, bringing overall stock levels to fresh seven-year lows. Gasoil stocks rose, having reached their lowest since April 2014 a week earlier amid steep backwardation in the Ice gasoil market.

The slight rise in inventories was caused by a diminution of barge flows to destinations along the river Rhine, which fell to fresh one-year lows as market participants inland sought to avoid building up their own inventories. Gasoil cargoes arrived from Russia and Qatar, and departed for Argentina, Germany and the UK.

Inventories of all other products fell during the week. Gasoline stocks ticked down, weighed down by a rise in flows to the US. Tankers also departed for Angola, Argentina, Canada, the Mediterranean, Mexico and west Africa.

The level of barge activity appeared to increase on the week, as market participants worked to produce export cargoes. Tankers containing finished grade gasoline and components arrived from Finland, France, Poland, Portugal and the UK.

Naphtha stocks fell heavily, weighed down by the increase in gasoline blending activity, to reach their lowest since June 2016 despite the arrival of cargoes from Algeria, Italy, Norway and the UK.

Naphtha consumption within the ARA was supported by the demand from gasoline blenders. Jet fuel stocks fell, amid a rise in demand as easing Covid-19 restrictions combined with school holidays to increase the level of civil aviation. A single cargo arrived from India while at least one departed for Norway.

Fuel oil stocks fell to reach their lowest since March 2020. Tankers arrived from Germany, the Mediterranean, Russia, Sweden and the UK, and departed for the Mediterranean and west Africa.

Reporter: Thomas Warner