Dear Valued Investor,
We are entering a 2-month period where demand has seasonally been weaker due to maintenance at refineries across the US.
The chart below shows our 2021 forecast, based on forward refining margins and seasonality.
Once the turnaround activity has passed, we will see refinery runs ramp up throughout the summer, which support our view that we will see healthy draws in the US.
Feb and Mar balances - net flat
Q2 balances - 22kbpd draws
Q3 balances - 500kbpd draws
The additional 1mbd Saudi cuts starting in Feb confirm the Kingdom’s commitment and incentive to support the market. It translates into a supported Brent forward curve that is currently reflected in a backwardated forward curve and a wider WTI-Brent spread on a relative basis over the last 60 days.
On a quarterly basis, about half of global withdrawals from storage in Q2 are forecasted to be US crude stock draws.
In Q3, this decreases down to 30% of global stock draws originating in the US.
As a result, we see the Q2 WTI-Brent arb strip now pricing inside the Q3 strip.
BCCM will be looking for opportunities to get long exposure to specific US grades, coupled with WTI-Brent structure exposure down the curve in case crude prices shift downwards during the refinery maintenance phase. Alongside the maintenance season, Covid-19 has led to long-duration lockdowns in Europe and the highest China infection numbers in 10 months. Additionally, we witness higher pipeline flows into the US from Canada that stem from Canadian oil sand production at record highs.
Sincerely,
Rudy Lombard
Trading Principal
Blue Creek Capital Management, LLC