From Morgan Stanley:
Rally in Brent Structure Does Not Imply Imminent Recovery (p.2). Brent structure is firming on N. Sea maintenance, and modest NW Europe refinery turnarounds. The bulk of BFOE maintenance is expected to occur Jun-Aug, which is what we are trading. The 2016 maintenance schedule is larger YoY, and earlier than normal, which compounds the problem, esp with light refinery maintenance in Europe. Conversely, longer dated Brent structure is being supported by producer hedging, similar to WTI.
Flatter Brent structure does not necessarily imply upside for flat price or evidence of a faster recovery in the global imbalance. Rather, it shows that oil markets are much more regionalized than markets tend to appreciate, even a global benchmark like Brent. Flat price is still primarily driven by global dynamics. Market May Be Too Excited by Early US Crude Draw (p.3). Last week’s counterseasonal crude draw does not signal the start of “drawing season.” One-off draws can occur before May, including another this year. PADD 3 runs are at record highs for this time of year but this dosen’t explain the sudden draw. We see other items that likely won’t repeat. 1) Low imports, which Clipper already sees reversing; 2) Inaccurate Exports; and 3) Abnormally Low Supply Adjustment Factor. PADDs 2+3+4 builds have been mostly inline with or above 5Y averages YTD. Had imports and the supply adjustment factor been unchanged from last week, the US would have built by 1.1 mmb (or 2.3 mmb for PADDs 2+3+4).
Can The Market Support Such High US Runs? (p.4). The product trends are worrisome to us, particularly the gasoline build, and lead us to question whether the US can sustain record runs this summer. Without exports, local demand may not be enough, even for the strong US gasoline market. European and Asian gasoline stock trends are worrisome for US gasoline exports. Distillate is also weak, with the US being no exception. Northeast Gas
DUCs Fell In Jan, But Pose Limited Near Term Risk To US Supply Declines (p.5). Pennsylvania Marcellus drilled but uncompleted wells (DUCs) fell to 12 month lows in Jan, but further completions will be limited by challenging price and takeaway options until 2H16.
