Just to play devil's advocate: given the current conditioning of the oil market (assumption that war will end imminently, jawboning from trump etc), why couldn't the market just assume that by April 15, IEA releases another 400mbbl from SPR again, pushing the 'breaking point' out further? Given that we are operating in markets that are addicted to selling risk premia, don't we need to stress test when is the *actual* final breaking point where no other options are left in world stocks? Do you have any sense for when this would be? 1. If SPR releases another 400mbl from SPR, how many more weeks does that buy? 2. How many total barrels does global SPR have left to release and how many weeks do those barrels provide assuming they are all released and SPR stocks go to zero?
Absent the closure of the Strait of Hormuz, wasn't there supposed to be a supply surplus? I understand that the number of barrels lost is equal to the lost production from the wells that have been shut in, but shouldn't the rate at which inventories are drawn down take into account that there would have been a surplus without the shut-in wells? Or did you take that into account in your calculations?
I'm not sure I understand why bringing back production will take near as long as EA suggests? How different is this from the big cuts made when COVID made OPEC shut in a lot of production? I don't recall there being a huge issue in getting production back on line when they reversed the cuts?
Anyways, thank you for this. I appreciate your insights and ideas.
Just to play devil's advocate: given the current conditioning of the oil market (assumption that war will end imminently, jawboning from trump etc), why couldn't the market just assume that by April 15, IEA releases another 400mbbl from SPR again, pushing the 'breaking point' out further? Given that we are operating in markets that are addicted to selling risk premia, don't we need to stress test when is the *actual* final breaking point where no other options are left in world stocks? Do you have any sense for when this would be? 1. If SPR releases another 400mbl from SPR, how many more weeks does that buy? 2. How many total barrels does global SPR have left to release and how many weeks do those barrels provide assuming they are all released and SPR stocks go to zero?
That’s a great question.
SPR release: maximum flow is 2.5-3 million b/d
Mismatch: 7-8.5 million b/d
If IEA decides to release another 400 million bbls, it will dampen the impact of the total outage, but it won’t dampen the flow outage.
Since onshore oil inventories will have declined by then, the market will start extrapolating the flow outage.
In my view, it might prevent a catastrophic scenario, but it won’t stop oil from reaching “headline breaking” levels: $150-$165.
thanks a lot - makes sense. last one - any sense for how many total barrels are left in total in global SPR?
800 million bbls headline capacity, effective is less than half.
~300
Is there any chance that China might release some oil from its SPR?
Zero
Absent the closure of the Strait of Hormuz, wasn't there supposed to be a supply surplus? I understand that the number of barrels lost is equal to the lost production from the wells that have been shut in, but shouldn't the rate at which inventories are drawn down take into account that there would have been a surplus without the shut-in wells? Or did you take that into account in your calculations?
Yes, we had a neutral balance.
Thanks for clarifying. I was hoping that there might be a bit more runway before we reach the breaking point.
Next: Australia bans the export of LNG. Why? Well, they are reading and rereading their contracts…another 70mmt per year.
I'm not sure I understand why bringing back production will take near as long as EA suggests? How different is this from the big cuts made when COVID made OPEC shut in a lot of production? I don't recall there being a huge issue in getting production back on line when they reversed the cuts?
Anyways, thank you for this. I appreciate your insights and ideas.