Elevated Chinese Floating Storage Still Represent The Biggest Headwind For Oil Markets In The Near Term

Elevated Chinese Floating Storage Still Represent The Biggest Headwind For Oil Markets In The Near Term

By cutting only 30 cents to a market that expected much broader cuts, the Saudis are effectively choking off demand for their crude. At ~80 million bbls, this may only represent ~6 days of crude imports, but because China is the marginal buyer, the reduction in demand continues to weigh on the front-month. China's floating storage has barely budged over the last month indicating further crude buying weakness for the October session (happening now in August). Welcome to the headwind edition of Oil Markets Daily! China's floating storage has barely budged over the last month indicating further crude buying weakness for the October session (happening now in August). At ~80 million bbls, this may only represent ~6 days of crude imports, but because China is the marginal buyer, the reduction in demand continues to weigh on the front month of oil prices. This is the main reason why we are seeing Brent 1-2 timespreads turn lower. So what could solve this near-term headwind? Saudi Aramco's OSP announcement this week could help alleviate the overhang. By cutting only 30 cents to a market that expected much broader cuts, the Saudis are effectively choking off demand for their crude. This means that Chinese refineries that bought cheaper crude back in March and April will be draining floating storage as a result. And since floating storage is the most expensive kind of storage, Chinese refineries will have no choice but to keep draining the excess. Once the Chinese floating storage situation resolves, oil prices can ...
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