09/06/2009
KUALA LUMPUR, June 8 (Reuters) - Crude oil demand has begun to recover, as stockpiles are drawn down, but distillate inventories remain bloated, with traders banking on cheap freight to store excess supplies on vessels, top energy executives said on Monday. The International Energy Agency (IEA) expects OECD oil stocks to fall to 57 days by year-end from the current 63 days, if OPEC's production continues at current levels, along with the recovery in demand.
Analysts said the general rule has been that 50 days of forward cover is very bullish for oil prices, 53 days is bullish, 57 days bearish and 60 days very bearish. "This is probably a turning point (in the demand recovery) or we are very close to it," IEA's head Nobuo Tanaka told Reuters at a sidelines of the Asia Oil & Gas Conference.
Along with the rebound in demand, the contango for crude may have started to unwind, though demand for diesel is still weak, European trader Vitol said.
"We are seeing the contango narrowing on light sweet crude, not really on distillates yet. Not in the summer at least," Vitol CEO Ian Taylor told reporters on the sidelines of the conference, adding that Vitol is also storing distillates and crude on ships.
With crude seemingly on the cusp of a recovery, JP Morgan has raised its forecast for fourth-quarter 2009 U.S. oil prices to $65 a barrel versus above $55 made in May, on expectations of an economic recovery and seasonal winter demand.
For the end of next year, JP Morgan has also revised its forecast to $70 versus $60 previously.
But the recent doubling of U.S. crude to above $68 a barrel on Monday from the low $30s in mid-December has set off alarm bells, although current prices are still way off the record above $147 last July.
STILL VOLATILE
Malaysia's state oil and gas firm said it was unclear if the oil price surge was due to the recovering economy or a new speculative play, while Vitol warned the rally did not seem aligned with supply and demand fundamentals.
"It is still uncertain whether the increase is due to the 'green shoots' of economic recovery or due to a new speculative play in the commodities and the weakening of the U.S. dollar," Petronas President and Chief Executive Officer Mohd Hassan Marican said in his industry address.
While being cautiously bullish about the crude market, Vitol's Taylor remained wary about the recent jump in U.S. crude prices, up 30 percent in May alone.
"The recent rise in oil prices do not appear to sit comfortably with the currently available supply and demand data," Taylor told the annual industry conference.
Unlike crude, the products market remains mired in excess supply, with Vitol storing distillates on floating vessels to take advantage of very cheap freight rates, Taylor said.
Vitol recently booked a supertanker to store 2 million barrels of Northeast Asian diesel off European waters, taking the total stored on vessels so far to 12-14 million barrels since the start of the year, traders said.
In June alone, diesel kept in floating storages worldwide by various players has climbed by 1.62 million tonnes (12.15 million barrels), taking into account storages in medium-sized vessels, and in a rare move, in VLCCs as well.
Traders said the ICE London gas oil spread is at $13.50 a tonne, which supported such floating storages given hefty onshore stockpiles.
Yet, some sounded a more upbeat note on distillates. Royal Dutch Shell said Western gasoline and diesel markets appear to be steadying after a slump late last year.
"We see signs of stabilisation, but it's very early days," Chief Executive Jeroen van der Veer told a media roundtable.
"We hope that we see the signs correctly, it would be good news if it stays like that," he said, adding that seasonal factors or destocking might have started to help the diesel and gasoline markets in the United States and Europe to stabilise.
While he was concerned that the world has more oil refining capacity than needed, leading to current meagre margins, the next oil price spike may already be in the works as investments in oil projects now have a long lead time of about four to five years.
"The system is slow to react. The next price spike may already be in the making," van der Veer said.
