*Rising US Virus Cases Dampening Sentiment*
The US has reported significantly elevated numbers of new virus cases. Some 16 states are reporting record increases in new virus cases at the start of July. In California, hospitalisations have risen 50% over the past two weeks, with infections recorded infections rising more than This is limiting what would normally be US driving season demand, with gasoline demand down considerably.
*Asian Refiners Trimming VLSFO Output*
In response to weak demand for fuels, refiners in South Korea, Thailand and Taiwan are all cutting production of the new 0.5% grade fuel oil. These refiners have been big exporters to Singapore but now look set to cut production, and in some cases up to a 50% cut in exports, to focus on domestic markets. Refiner Hyundai Oilbank noted that they were producing under 200,000 mt/month, nowhere near their capacity of 300,000 mt/month.
*Impending Market Share Battle*
A slow recovery and slower growth in oil demand will have profound effects on the oil industry. One of those will be the increase competition for market share between producers. Consumption growth has been slowing since the 1970s and is a trend that could be bringing us to peak oil very soon. The majority of post-1995 consumption growth has come from non-OECD countries. None has had more of an impact than China, which has accounted for 40% of all oil growth in the last 25 years, or 50% since 2007 according to Reuters. With Coronavirus disrupting demand, there is going to be a scramble to cater for the dwindling demand growth in the future.
*It Ain’t Heavy Man*
The world crude supply is short of the heavier grades. Russian and Arab heavy crudes are in increasing demand as OPEC+ cuts dropped production to levels not seen since 1991. The market is reflecting this under-supply with Ural Crude trading at $2.40 a barrel above Dated Brent in April, and Saudi Aramco selling its densest crude – Arab heavy – at the same price as its Arab light for the first time ever.