US, WASHINGTON (ORDO NEWS) — More than a month has passed since oil prices went to negative territory. Since then, they have shown impressive recovery. Many again had an optimistic attitude against the background of the fact that a huge oversupply and the problem of a limited amount of storage seemed to be left behind, and the markets managed to avoid big trouble.
Nevertheless, traders still have unpleasant sensations: oil storages are extremely crowded, the ghost of another sale loomed on the horizon, such as the one in April.
Oil-filled tankers still stand on the high seas off the coast of the United States, China, Europe and other regions, and processing levels across the globe are far from their usual volumes.
However, another method has now emerged for ongoing insanity.
High rates of oil traders
The obvious reason for the lack of space for oil storage: global oil consumption remains low, despite the fact that the economy is gradually leaving the quarantine regime.
In a new report, the IEA predicts that in May global demand for oil will decrease by 25 million barrels per day compared to last year, in June it will be 15 million barrels per day lower than the same period last year, demand in December will be 3 million barrels per day below.
Nevertheless, the analysis of the profit of oil refineries suggests something else.
Over the past 8 weeks, gasoline spreads have expanded significantly. Crack spreads reflect the economics of processing a barrel of oil into its various products. This is a useful indicator for measuring real-time demand for oil and various distillates. And now he is showing that oil demand may not be as low as previously thought.
The refining trajectory looks promising and suggests that there may be something else that can be blamed for the resulting impasse.
This situation can be explained to smart traders who are monitoring profit against the background of oil contango.
Bloomberg said a number of oil supertankers off the coast of South Africa were chartered by leading oil trading companies, including the Vitol Group, Mercuria Energy Group Ltd. and Glencore Plc, through a subsidiary of ST Shipping. Traders allegedly want to buy cheap oil and sell more expensive forward contracts to take profits, or they just try to save oil and wait for oil prices to rise and then sell.
By placing large bets on oil, oil traders contribute to a shortage of oil reserves and exacerbate market volatility. Bloomberg estimates that tankers have enough oil to satisfy 20% of the world’s daily oil demand. This is more than enough to keep prices in check and maintain price volatility.
Prosperity in chaos
However, it is in this situation that oil traders thrive. In January, Bloomberg reported that dozens of major oil traders earned multibillion-dollar profits in 2019, thanks in large part to market volatility. Independent traders such as Vitol Group, Mercuria, and Trafigura earned record high profits. But such a murder is not only committed by independent traders.
Own trading units of oil giants such as BP Plc, Royal Dutch Shell Plc and Total Plc made even greater profits, given that a company like Shell trades 13 million barrels of oil per day, twice as high as 7.5 million barrels per day sold by Vitol. The bulk of last year’s instability is caused by supply disruptions.
This year, oil markets were much more volatile, which, as predicted, could create the conditions for another successful year for oil traders.
Unfortunately, this may also mean that a smooth recovery in oil prices, which many investors hoped for, will not happen.
Contact us: [email protected]