Weekly Oil Data Review：Shooting the phoenix
BARCAP_RESEARCH_TAG_FONDMI2NBUR7SWED Please see analyst certification(s) and important disclosures on the back page. Weekly Oil Data Review Commodities Research 5 May 2010 Shooting the phoenix The Macondo spill appears to us to be far more serious than Exxon Valdez in its potential longer-term implications for the oil industry. A failure in the implementation of upstream technology raises more difficult issues than failures in the transportation midstream, particularly when they occur at the cutting edge of frontier province developments. As is detailed in the latest Weekly Geopolitical Update, the political imbroglio in Iraq is becoming more dangerous. Our view remains that the potential for Iraqi output increases in coming years is being grossly overestimated in consensus estimates. The build in crude inventories at Cushing has continued unabated, even as crude inventories for the US as a whole rose by less than the five-year average. Resid inventories have continued to pile up, with the Gulf Coast producing resid at double last year’s rate. On the more positive side, gasoline demand has cemented a record high for any April, and there are signs that diesel demand has finally started to track the path of the key macroeconomic indicators that have led it. Figure 1: US Department of Energy weekly data summary (mb) 30 Apr 2010inventor ies1 week change4 week change1 year changedifference from 5 year averageCrude oil360.62.84.4-14.7 17.4Gasoline224.91.22.512.517.6Total distillate152.40.66.75.934.8Heating oil45.10.02.86.510.1Diesel107.30.53.9-0.6 24.7Jet kerosene44.50.32.43.84.4Residual fuel oil46.11.25.010.27.9Unfinished oils83.40.40.2-6.0 -6.9 Other oils170.83.311.9-16.3 1.3Total commercial inventories1082.79.833.1-4.6 76.5 There has been a fresh burst of volatility in the oil market over the past week. While the value of the OPEC basket hit a new 19-month high in dollar terms on 3 May and in euro terms on 4 May (see Figure 3), the main futures benchmarks dropped sharply after touching new highs, and the massive dislocation at the front of the WTI curve has increased. The latest fall has been associated with another outbreak of macroeconomic pessimism, with fears arising from the uncertainties surrounding Greece trumping all else for a while. However, we do not see the latest move down as being more than a movement towards the bottom of the range in a market whose fundamentals are pretty Paul Horsnell paul.horsnell@barcap.com +44 (0)20 7773 1145 Costanza Jacazio costanza.jacazio@barcap.com +1 212 526 2161 Kevin Norrish kevin.norrish@barcap.com +44 (0)20 7773 0369 Amrita Sen amrita.sen@barcap.com +44 (0)20 3134 2266 Yingxi Yu yingxi.yu@barcap.com +65 6308 3294 www.barcap.com Volatility returns BARCAP_RESEARCH_TAG_FONDMI2NBUR7SWED 2 Commodities Research Barclays Capital much unchanged. Indeed, without shifts to the bottom of the range like this, we would think that our forecasts for the quarter might be a bit too low. As it is, we remain extremely comfortable with those forecasts and reiterate the forecast for WTI to average $86 in the current quarter. On 24 April, the first Iraqi Airways flight from Baghdad to London in 20 years took off. The Guardian newspaper reported the event somewhat poetically. “Like a haiku, a symbolic event has the power to encapsulate the prevailing mood of a moment. An essential truth that distils the most complex of issues into the simplest of forms. The long-awaited return of Iraqi Airways to UK airspace has this quality, and I for one will be tipping my hat in quiet admiration when I see its green livery towering over the British capital.” No doubt about it, the take-off of that flight was highly symbolic. However, perhaps even more symbolically, on its arrival at London Gatwick, the plane was met by lawyers, immediately impounded, and the passport of Iraqi Airways’ Chief Executive was confiscated. The appropriate haiku would then seem to involve a colourful bird of hope taking to the wing briefly before being sucked into the engine of a passing 747. The Iraqi plane had flown straight into the UK’s longest running legal dispute, concerning the Kuwait Airways planes that were lost as a result of the 1990 invasion. A judgement in Kuwait’s favour that now stands at $1.2bn was awarded in 2004, so for Iraqi Airways to attempt to fly in to London while that judgement was still pending can at best be described as a tad naive. The immediate legal impasse was solved in the UK High Court today, but the whole incident seems to us to be typical of the last seven years of Iraqi history. A series of deeply symbolic events h
