No, this isn’t about the song, though it is an awesome one. This is about the fact that we are now seeing real stress developing in the crude market.
Why?
We are now in the final countdown phase of the oil inventory buffer. The reason you are seeing physical crude prices +25 to +$30/bbl today relative to the benchmarks is that inventory levels are far too low to be comfortable.
In our WCTW at the end of August titled, “How Much Time Do We Have Left On The Oil Math?“ I wrote:
Assuming Iran completely chokes off the Oman lane flow, the non-China buffer runs out in 15 to 21 days (using ~6 million b/d flow).
Similar to what we saw at the end of April (the oil market is pricing 2 weeks in advance), if the expected crude flow drops, the physical market will scramble regardless of whether China is buying or not.
You see, because the Oman lane is flowing so much oil (or as claimed by the US), the sudden evaporation of that, coupled with already low oil-on-water and low onshore storage ex-China, the panic just hits suddenly.
So far, Iran has been firing missiles at ships daily, but the Oman lane flows continue. What’s interesting is that oil leaving the Gulf of Oman has increased steadily over the past 2 weeks.
Source: HormuzStraitTracker.com
Including Oman and Fujairah flows, Kpler's first week of September averaged ~15 million b/d.
Source: Kpler
So despite this backdrop, the steady crude oil deficit is starting to eat into the ex-China crude oil buffer because, you guessed it, China is buying crude again.
But the latest bout of Chinese buying brings more questions than answers. For example, why now? Why are the Chinese oil majors buying as if crude is going out of stock just ahead of the Xi/Trump summit on September 24? Is there something in the geopolitical landscape we are not aware of?
I don’t know, and I won’t be able to guess if the Chinese have some secret deal with Trump, but this is what I do know, and why this warrants your attention in analyzing the oil market.