Navigating Negative Prices & Collapsing Demand

Mike Wittner

Head of Oil Market Research, ICE

Vincent Turcotte

Director of APAC Sales, ICE Futures Singapore

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Today’s topics

• Collapsing demand

• The recent OPEC+ production cuts

• Focus on US supply

• A self-reinforcingcycle: weak demand, low prices, and stockbuilds

• What are the differences between Brent and WTI?

2

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Global demand

3

Coronavirus drives an unprecedented collapse in refined product demand

Source: International Energy Agency, Oil Market Report; released 15 April 2020

Global Oil Demand Growth y-o-y (Mb/d)

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Global supply

4

A rapid drop, but not as big and not as fast as the demand collapse

Source: International Energy Agency, Oil Market Report; released 15 April 2020

Global Oil Supply (Mb/d) Oil Supply Response, m-o-m change

(Mb/d)

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OPEC+ supply: cuts are too little, too late, at least for Q2

5

The short Saudi vs Russia price war ends, and the biggest cuts ever are announced

Source: International Energy Agency, Oil Market Report; released 15 April 2020

Russia Crude and Condensate

Production (Mb/d)

Saudi Arabia Crude Supply (Mb/d)

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Non-OPEC supply

6

Market-driven output declines, led by the US, Canada and Brazil

Source: International Energy Agency, Oil Market Report; released 15 April 2020

Total Non-OPEC Supply, Annual

Change (Mb/d)

Total Non-OPEC Supply Growth

y-o-y (Mb/d)

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US supply

7

Dropping output is a reaction to prices: a combination of outright shut-ins and steep spending cuts

Source: International Energy Agency, Oil Market Report; released 15 April 2020

US Crude Production (Mb/d) US Crude and NGLs Production

Growth YoY (Mb/d)

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Inventories

8

Pre-crisis starting point was average but stocks are building rapidly. Remaining capacity is limited.

Source: International Energy Agency, Oil Market Report; released 15 April 2020 (left-hand chart)

Source: US Energy Information Administration, WPSR; released 22 April 2020 (right-hand chart)

OECD Total Oil Industry Stocks (Mb) US Crude Stocks (Mb)

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A self-reinforcing cycle

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Weak demand, low prices and stock builds

Source: US Energy Information Administration, WPSR; released 22 April 2020; ICE

-8.00

-6.00

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read

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sh

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Sto

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n B

bls

)Cushing Crude Stocks vs. ICE WTI M1/M2 Spread

Cushing Stocks ICE WTI M1/M2 Spread

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Brent and WTI crude

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What are the differences?

Source: ICE

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$/b

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ICE Brent and ICE WTI Front Month Prices

ICE Brent Front Month Futures ICE WTI Front Month Futures

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-8

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0

2

$/b

bl

ICE WTI/Brent Spread - 5 Day Average

Conclusions

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14

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Mini Brent crude futures

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15

Mini Brent crude volumes

0

500

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3500

Volume

Open Interest Value

Questions

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