- OPEC Looked to Increase Production As Planned in May after producing an average of 25.3 million barrels a day (mbpd) last month, about 50,000 a day less than in March. Libya, which has managed to revive production since late last year following a truce in its internal conflict, suffered a slight setback by 80,000 barrels a day to 1.14 mbpd as a budget dispute threatened attempts to fix war-damaged infrastructure. Iran, on the other hand, added 60,000 barrels a day to reach 2.41 mbpd, the highest level in two years. If sanctions are removed by the US, then another 1.5 mbpd could be eventually added. Some analysts are forecasting an OPEC+ increase of 1.6 mbpd over the June to August timeframe, following the forecasted increase in demand from the global economic recovery. Certainly Russia is increasing its production (see graphic right) as OPEC+ gave it clearance to pump more. Also the glut from the collapse of demand from the pandemic is whittling away as the graphic below shows. In short, it seems that the market is pretty well balanced and will continue to be so the rest of 2021. OPEC is next due to meet on June 1.
- US Production Stayed Constant in April at around 10.9 mbpd as of April 30th while operating rigs continued higher, moving to 342 as of the same date from 337 on April 2nd. The Permian Basin, the US’ most prolific shale formation, will produce crude oil at levels not seen since the start of the pandemic in the latest sign the global economy is heating back up. Output in the basin will reach 4.4 million barrels a day in May, the most in a year, and rig counts have touched a one-year high. Prices at the pump leveled off per AAA data at $2.90, two cents higher than a month ago, but still much higher than the $2.11 average back in November, 2020. Looking ahead, the state of New York proposed raising its gasoline tax by 55 cents per gallon to general additional revenues. Other states are likely to do the same, particularly if they wish to dis-incentivize non-electric transportation.
- China’s Crude Imports in April fell as expected to 9.8 mbpd (-0.2% y/y) with potentially a 20%+ y/y increase in May. Congestion levels on roads during morning rush hours in the week through April 12 were higher than average levels in 2019 in major cities including Beijing, Shanghai, Tianjin, Changsha and Wuhan. Oil refining in March alone jumped 20% year-on-year to a near-record 14.14 million barrels a day. Finally, China was forecasted by S&P to increase oil product exports by +31.7% on year in 2021.
- US Grain Production looks on track with the latest planting at last year’s progress for corn (67% complete vs. 65%) and well ahead for soybeans (42% vs 36%). China, the main destination for the world’s crops, was very active as April soybean imports climbed +11% on year. Their March soybean imports from Brazil plunged as rain delayed some shipments from the top exporter, but its imports of the oilseed from the United States more than quadrupled. The world’s biggest buyer of soybeans imported 315,334 tonnes from Brazil in March, down 85% from 2.1 million tonnes a year earlier. From the United States, China imported 7.18 million tonnes of soybeans in March, up 320% from 1.71 million tonnes in the previous year. Drought conditions in Brazil also focused the world’s grain markets on US planting progress and upcoming crop though as the graph illustrates, Brazil is still a mighty supplier. Argentina, the world’s third largest exporter of soybeans and corn looked to be less attractive for sourcing grains as its government contemplated increasing export taxes. In addition, its harvest progress was well behind averages and last year, but that can turn around quickly. Ukrainian grain exports have fallen by -24% to almost 39 million tonnes so far in the July 2020 to June 2021 season, which included 15.13 million tonnes of wheat, 19.14 million tonnes of corn and 4.12 million tonnes of barley. China’s 2021 corn output was forecasted to rise +4.3% from the previous year to 272 million tonnes.
- Commodity Demand prompted the steepest backwardation (premium in front month futures) in more than fourteen years, per Bloomberg. Will this demand be met by supply or curbed by higher prices?
David Burkart, CFA
Coloma Capital Futures®, LLC
Special contributor to aiSource