OPEC+ Surprised Markets by leaving production largely unchanged at their March 4th meeting, with a small increase permitted for Russia (+130,000 barrels per day (bpd)) and Kazakhstan (+20,000 bpd). This leaves 1.35 million bpd (mbpd) off the market for another month, through April. Oil prices rocked higher to the $65 per barrel zone at the end of the first week of March. While the paper contracts for future deliver reacted strongly, some said that the physical market had plenty of barrels available, which actually influenced the decision. Basically, per Reuters, they (Saudi Arabia?) concluded that there was not yet enough demand to warrant pumping more crude. Riyadh seemed willing to gamble that that US shale companies for now cannot take advantage of the price rally, according to JPMorgan. We shall see at the next meeting on April 7th whether they have a new view. In other OPEC news, Libya’s oil production climb continued, hitting 1.3 mbpd. Iran wrestled $1 billion from South Korea owed to it in return for releasing an oil tanker it took over last month. The theocracy extended its cold war by starting production of uranium metal in violation of 2015 agreement, the IAEA said. Meanwhile, the US sold more than a million barrels of Iranian fuel seized under its sanctions program last year as another ship with intercepted Iranian crude oil sailed to a US port. So far Biden and Kerry have stayed quiet on its ultimate fate.
US Production Fell to 10.0 mbpd (about -9%) due to the Texas freeze and the slow subsequent recovery while total US operating rigs continued higher, moving to 309 on February 26th from 295 on January 29th. US oil output fell by about 3.5 mbpd, with production in Texas’s Permian Basin plunging by as much as 65%. Perhaps more relevantly, US refining capacity fell by 5.6 mbpd from the freezing temperatures as more than twenty refineries in Texas, Louisiana and Oklahoma went off-line. By the end of the month, about 70% of that capacity was in the process of restarting or had at least partially had returned, with early March seeing seven Texas refineries at full operations. Separately, the Biden administration extended its closures of US pipelines with the Dakota Access Pipeline that ships Bakken crude in its sights.
Other Energy News included Brazil’s crude exports enjoying a recovery to 1.3 mbpd with shipments to China, Europe and the US. Saudi Arabia continued to suffer drone / missile attacks throughout February and March. China’s crude imports in February were assessed at 11.5 mbpd, above 11 mbpd for a second straight month amid strong fresh arrivals. Finally, as the graphs to the right show, global storage is close to normal levels… the question is will it respond quick enough to a global economic recovery? The capacity is there but is the political desire?
China Stocked Up on Meat in the first two months of the year, importing 1.6 million tonnes or +27.6% from the same period a year earlier. US meat exports to China for all of 2020 were +15.2% above year ago and at a record high. Based on Allegiant’s production estimates and USDA’s import/export forecasts, US domestic pork supplies for the first half of 2021 could be record large – needing strong domestic demand to sustain current high prices if China does not step up. China’s farm minister projected that Chinese hog herd size will full recover from ASF by June. US farmers were forecasted to plant 182 million acres of corn and soybeans in 2021, the highest combined total for the two crops on record, per the USDA. Robust global demand sent prices for both crops soaring in recent months for the world’s top corn exporter and the # 2 soybean supplier after Brazil. Speaking of Brazil, its soybean harvesting progressed, but still lagged last year’s pace and the historical five-year average due to heavy rains. Ship tonnage of 19 MMT of soybeans was stacked up at Brazilian ports, which some believe is the largest in history. The pace of loading was reportedly accelerating following a significant increase in the number of trucks entering key ports with the port at Paranagua expected to operate at capacity for the next five to six months. Australian farmers will harvest a record amount of wheat during the 2020/21 season, after heavy rains in the country’s key producing regions boosted yields. With it nearly completed, the country should harvest a record 33.34 million tonnes, surpassing the previous all-time high of 31.8 million tonnes in the 2016/17 season. Finally, Australia’s gold production rose to 327 tons in 2020, a record for a calendar year, and about 1.5 tons more than 2019, according to Surbiton Associates.
David Burkart, CFA
Coloma Capital Futures®, LLC
Special contributor to aiSource