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Vortexa are proud sponsors of this year's Reuters Commodity Trading Summit, held on 9-10 November. CEO Fabio Kuhn and Managing Director Clay Seigle both participated in the event with leading industry players.
On Day 1 of the Summit, Vortexa CEO Fabio Kuhn delivered a presentation on New Tradeable Indicators for a Volatile Oil Market. The topics covered included:
Floating storage as a leading indicator, and its relationship to prices and balances
Inflection points in arbitrage flows in clean petroleum products, with case studies from US and European markets
Freight trading indicators, including fleet utilisation and the relationship between availability and prices
Here are some of the questions Fabio answered during Live Q&A:
Q: Could we see another build up of floating storage if demand conditions remained weak?
It is very possible that floating storage could rise again, but it is unlikely to reach the same peak that we saw in early March-April. Floating storage and the levels that it was at, really caught the market by surprise, and the Covid distortion has been one that we have all learned from. Overall, it is possible for floating storage to build up again, but not to as high as it was in the past.
Q: You touched on it there, but do you think floating storage has peaked?
I believe so; you can never say never nowadays because the market is at unprecedented levels of volatility. However it is unlikely to reach the same levels of earlier this year. Floating storage is still an indicator and one to watch though because the market is more aware of it. If floating storage does go up, it has more significance more than it did in the first lockdown as the market has adjusted. If levels go up, that can potentially mean the market may be even more oversupplied than before.
Q: From a technology point of view, do you think the relationship between freight and energy markets is getting stronger over time?
Yes definitely. We've seen the link between freight and energy getting stronger. The main reason is that the margins on physical commodity trading have been narrowing over the last few years, so freight has become a factor that can make or break a trade, more than ever before. Having an understanding of the freight market means an understanding of the physical arbitrage. Likewise, seeing the forward view of freight also means knowing where the physical arbitrage will open down the line.
Q: What would you say will be the most important indicators to watch as we come to the end of this year and enter 2021?
In addition to floating storage and freight markets, one particular indicator we are watching closely is the volume of in-transit flows of energy products, especially in refined products, in order to look closely at the demand of the market. If we see either an increase or decrease of a flow, that can be strong predictor of the health or state of demand.
On Day 2 of the Summit, Managing Director Clay Seiglewas featured on the Producer Perspectives on The States of the Oil Market in an Unprecedented Climate panel alongside Cristian Signoretto, Director Gas & LNG and Deputy General Director for Natural Resources at ENI, and Carol Howle, EVP for Trading and Shipping at BP.
Panellists discussed the fundamentals for supply and demand across oil and LNG, and the distortions that Covid-19 has carved into each of these markets.
View the full session below.
Here are some questions Clay answered during the session.
Q: Clay, your company tracks real-time shipping data so you see some of the disarray in a year like this...we've seen record floating storage over the summer. Some of that stockpiling has started to work off, and we're getting now to a period of slower drains of oil at sea. Can you walk us through what you've seen in terms of oil flows?
I want to start the discussion here by acknowledging what I think was a pretty profound rally in the price of oil in the futures market yesterday on the news of the optimistic news about a vaccine for Covid 19. Normally, I don't place too big weight on these kind of daily headlines. But in this case, I kind of think it cuts right to the heart of our discussion about the outlook for global oil.
Global oil demand is definitely an important sign for the oil market so it's no surprise to see future prices kind of surge on that news. There is some risk of moral hazard though with that, that I think is also important for our oil discussion. If people start behaving like they are already out of danger and at a low risk, then we could potentially see it backfire. In the beginning, the physical oil market certainly remains depressed versus last year, demand for refined products is low in many regions of the world. And of course, reduced supply around the world has helped move us in the direction of eventual rebalance, specifically in the United States where supply has turned down.
From OPEC+ perspective, we've seen generally strong compliance with their supply reduction programme recently. Looking at countries in particular, like the United Arab Emirates, which had been a little bit higher than target, it looks like they've turned down their exports significantly, to where they probably should be in October relative to previous months. We keep a close eye on countries like Russia and their seaborne export programme in October which is pretty flat month on month versus September. So it looks like OPEC+, right now is setting the stage for continued good compliance.
Q: What do you see in terms of the current market still signalling that there is lots of oil offshore that eventually needs to work its way to shore, also looking through the end of the year and beginning of 2021?
Let me describe what we are seeing our data. Crude floating storage is back down below 100 million barrels on hand. That is down by more than half versus its highest level that we saw in April, about 220 million barrels that was as late as June. And the biggest driver to the draining of floating storage is the same country that was largely responsible for the accumulations offshore and that's China.
Right now we are seeing fewer of those long-haul cargoes arriving into anchorage off of China but the deliveries of those cargoes into the terminals on shore are still proceeding. The net effect of that dynamic is to drain those floating storage levels and to draw them down. So, a lot of the congestion that we have all read about and heard about at Chinese ports in recent months is probably going to ease if that if that pattern continues.
Q: Looking at 2021 and kind of reading where the market is right now. What are some of the signals you're going to be looking for in the data to tell you that support the prices is, is becoming firmer support for the support of the markets and you could kind of speak to oil or the LNG side?
We are advising our clients to watch for three main factors that we think will help determine the outcome for the oil story. The first is this renewed weakness that we're seeing in the European markets with this latest series of lockdowns by country. And this time again, it's not the traders playing the contango spread, because that's out of the money right now. So this tells us that in at least some cases, some suppliers are having trouble finding buyers for at least some of their cargoes which is no surprise given terrible refining margins.
The second big factor for the future is the return of Libya. Our provisional data from the first week in November shows that the combined total exports of both crude and condensates was nearly 1 million barrels per day. That is not a sustainable level. The first cargoes to get shipped from Libya in this big sort of surge are also going to be drawing down from onshore inventories that accumulated during the long hiatus. It really wouldn't be surprising after such a long hiatus to see some hiccups, some disruptions either in the producing fields or along the midstream.
The third point we definitely cannot overlook and encourage our clients to keep an eye on with our data is China. Earlier this year, China had been on a big crude oil buying spree. Chinese buyers imported something like 14 million barrels a day back in April, and that number has decreased dramatically, it's now below 8 million barrels per day. The inventories are ample there and those import quotas for the private side have been pretty much used up for 2020.
To see more of our events, head to our Events page.