Revising Our Global Oil Supply & Demand Model: 2nd Half Of 2022 Has Loosened
It seems like in every article, I have to reiterate my stance on the oil market just to make sure no one is confused. So here it is again:
Bullish energy stocks - fundamentals will win, companies are generating an asinine amount of free cash flow, and shareholders will benefit.
Crude - rangebound, market has already seen where demand destruction takes place ($170 to $180 crude + refining). The market is currently trying to find the lower bound, which is creating a lot of volatility. Once the lower bound is found where demand picks back up, energy stocks will benefit.
Refining margins - bearish. Refining margins have already started to fall materially, but given the weakness in the demand, refining margins will remain under pressure.
With that out of the way, the facts have recently changed for the global oil markets. For starters, Europe just clarified that trading houses can legally trade with Russian entities. This will result in the potential supplies lost from Russia greatly diminishing. As a result, we have revised lower Russian crude production loss from ~1 million b/d to 0.5 million b/d. The tanker market will likely remain very heated because of the extra demand from trading houses shipping crude from Russia to India and China instead of Europe. (I.e. go long tankers)
Another data point change we made was with respect to Saudi Arabia's oil production. We are revising Saudi production up to 10.75 million b/d average for Q3 and 11 million b/d for Q4.