Crude oil fundamentals hint at improving storage incentives

2021 is a fascinating year – in many perspectives. One aspect is that the long-established lead of East of Suez markets in oil demand growth is temporarily broken, as the Atlantic Basin has established itself as the more dynamic market since spring. Peak summer road fuel demand glued well with the structural recovery from the pandemic, boosting crude import requirements into North America and Europe. Meanwhile for Asia, optimism has faded, with one COVID 19 outbreak after another weakening final product demand, while crude imports came under even stronger pressure from strategic shifts in China. Amid the double whammy of strong inflationary pressures and a deepening environmental crisis, Chinese policy makers are step-by-step confirming a drastic U-turn on its domestic refining strategy. Over the last two months, strongly curtailed crude import and product export allowances, closed taxation loopholes on alternative refinery feedstocks and other measures have not only crimped crude processing in China, but also switched the inventory policy from regular strong builds to drawdowns. The market is at risk of not fully appreciating how big a game changer these developments are for...