Foxconn cancelled the reopening of their mfg plants scheduled for tomorrow. Rescheduled to March 3rd. . . . if they're lucky.

[BLA + 1,666]

70 million Chinese still quarantined.

Is the virus ending or just starting ?

Worst case it's another Spanish Flu 1918 (originated in China) where over 500 million were infected and 50 million world wide died.  This was back when the world was much less populated and very little international travel and business.

A 100 year event ?

Foxconn continued closures are foreboding.

Some fear that the Chinese economy could collapse.  I kinda doubt that  . . . . but prepare for the worst, hope for the best. 

Oil prices can't escape this continued crisis. 

Don't be fooled by some Chinese independent refiners buying some inexpensive oil.  The short buying spree where China's government owned refiners turned away shipments won't last too long.  The Chinese independent refiners are like shale producers , over expanded, over leveraged.  Can't continue to buy spare oil much longer. 

I'm told as of the beginning of the year there was about 180 million bbls of spare storage capacity in China.  It will take a while to fill . 

Edited February 16, 2020 by BLA

[0R0 + 6,251]

Fortunately some production did start up this week, an not only for facemasks. Hyundai and Kia reported restarting production since some parts are again coming in. 

Small Chinese manufacturers are not able to comply with the new virus control regulations due to mask shortages and lack of medical staff to administer mandatory daily worker screening, as well as being unable to provide quarantine facilities for incoming workers from pandemic struck provinces. Local officials are still restricting mobility and not allowing people from the 7 hardest hit provinces to come back to work, or even to their apartments. Many will not survive with 0 revenues for two months. 

Theaters restaurants and bars and other event businesses are closing for good, because they can't survive the cash drain without revenues for the foreseeable future. It will take months if not a whole year to get them restarted. 

Travel will remain constrained for months to come. I would say there will be at least 1 Mob/d less consumption AFTER recovery than before covid-19.. IEA estimates are all wet.

There has been large scale damage to livestock due to quarantine in villages. Inflation is picking up even faster. The big liquidity injections by the PBOC and free bank financing for virus response efforts are going to make it that much worse. 

The search for new production targets to replace China is on full blast. Anywhere with literacy better than 50% is a candidate for relocating out of China. "Elbonia" gets industrialized next year. Industrial estate developers are looking to contractors to build roads fast and setup mobile in situ electric generation and prefab factories. Unfortunately the cheapest reliable contractors for this kind of work are Chinese, and they can't bring their workers out of China.

I wonder where Foxconn builds their new Apple iphone assembly plant. 

Some importers are quarantining imports for two weeks before allowing access to cargoes. 

[0R0 + 6,251]

6 hours ago, BLA said:

Don't be fooled by some Chinese independent refiners buying some inexpensive oil.  The short buying spree where China's government owned refiners turned away shipments won't last too long.  The Chinese independent refiners are like shale producers , over expanded, over leveraged.  Can't continue to buy spare oil much longer. 

I think that is hoarding as an inflation hedge due to general shortages and huge money printing efforts at the PBOC. They will make capacity if they don't have any. Credit is now available to business on close to a "no questions asked" basis if you have anything to post for security. 

[wrs + 893]

23 hours ago, BLA said:

 

Don't be fooled by some Chinese independent refiners buying some inexpensive oil.  The short buying spree where China's government owned refiners turned away shipments won't last too long.  The Chinese independent refiners are like shale producers , over expanded, over leveraged.  Can't continue to buy spare oil much longer. 

I'm told as of the beginning of the year there was about 180 million bbls of spare storage capacity in China.  It will take a while to fill . 

So is it fair for producers to have to sell oil at lowered prices because of perceptions while these guys fill their tanks at cheap prices that otherwise wouldn't be available to them if not for the perception that demand has decreased?  How is them filling storage not demand?  Can't have it both ways.  

You are cheerleading for lower oil prices due to the CV crisis so am I to take it you want millions to die?

Edited February 17, 2020 by wrs

[BLA + 1,666]

On 2/17/2020 at 10:09 AM, wrs said:

So is it fair for producers to have to sell oil at lowered prices because of perceptions while these guys fill their tanks at cheap prices that otherwise wouldn't be available to them if not for the perception that demand has decreased?  How is them filling storage not demand?  Can't have it both ways.  

You are cheerleading for lower oil prices due to the CV crisis so am I to take it you want millions to die?

The short term demand from buying spree subsides.  Prices drop.  Buying steps up goes to inventory.  Prices will go lower. Lot of the excess oil sales thru International Trading Firms.  

Most people whom follow the industry would agree that processing crude in China  is down at least 2 mm bbl/day.  That will probably grow to 4 mm bbl/day next month.  

Whether it's bought and stored or stays in OPEC countries the production continues and inventory builds.  

If the virus was over today we would probably go back to normal conditions fairly soon.  But it hasn't ended.  Nobody being honest knows when it will.  

Edited February 25, 2020 by BLA

[0R0 + 6,251]

On 2/17/2020 at 11:02 AM, BLA said:

The short term demand from buying dpree subsides.  Prices drop.  Buying steps up goes to inventory.  Lot of the excess oil sales thru International Trading Firms.  

Most people whom follow the industry would agree that processing crude in China  is down about 2 mm bbl/day.  That will probably grow to 4 mm bbl/day next month.  

Whether it's bought and stored or stays in OPEC countries the production continues and inventory builds.  

If the virus was over today we would probably go back to normal conditions fairly soon.  But it hasn't ended.  Nobody being honest knows when it will.  

 

On 2/17/2020 at 10:09 AM, wrs said:

So is it fair for producers to have to sell oil at lowered prices because of perceptions while these guys fill their tanks at cheap prices that otherwise wouldn't be available to them if not for the perception that demand has decreased?  How is them filling storage not demand?  Can't have it both ways.  

You are cheerleading for lower oil prices due to the CV crisis so am I to take it you want millions to die?

Edited Monday at 10:10 AM by wrs

Actual consumption of final product is down and substantially. Demand, looking forward, has not changed that much. The refiners were on maintenance for the holiday so were not producing and inventories in China are typically low at the end of Lunar New Year. So the fact that refinery runs are "only" 2 MOB/d down is not encouraging. 

But to get to the forward you need to put the stuff in storage, which has to be at a discount to the long term value. 

Interestingly, Brent has resumed backwardation for next month already. Presumably since the brent market is much tighter due to Libyan and Nigeria crude offline in addition to Venezuela and Mexico's reduced production.  

https://www.barchart.com/futures/quotes/QA*0/futures-prices

WTI is only looking like backwardation takes hold in the Aug Contract. 

https://www.barchart.com/futures/quotes/cl*0/futures-prices

 

[Douglas Buckland + 6,308]

 

“Fortunately some production did start up this week, an not only for facemasks. Hyundai and Kia reported restarting production since some parts are again coming in. “
 

What is with these face masks? Does anyone actually believe that they are effective? They do not seal around the edges so I believe it is simply a ‘feel good’ measure.

I was watching CCTV4 (Chinese news) yesterday and the newsman was interviewing a Chinese medical expert, in the newsroom. The newsman did not wear a mask while the medical expert did.

I am guessing that all public officials in China have been instructed to wear a mask at all times, in an effort to appear to be ‘doing something’ and to get he Chinese population to wear masks. I doubt that masks are effective in this case but at least you look like you are making an effort....similar to building a single 1,000 bed hospital in a week.

Again, I feel that the Chinese people and their medical community are doing the absolute best with what they have available, but the Chinese government has dropped the ball in getting ahead of this thing by initially refusing outside aid and professional assistance.

[wrs + 893]

This is absolutely nuts.  You have a lockdown but at the same time you are subsidizing car sales when people aren't even allowed out to use the car?  How can you even go buy a car?  The Chinese are completely conflicted. Mixed message anyone?

This is the perfect example of both ineptitude and hypocrisy.  Govt of all kinds simply assumes it knows best and how can it? In the end, govt is just stupid people telling other people what to do.  

https://www.zerohedge.com/economics/chinese-cities-begin-subsidizing-car-purchases-resurrect-auto-market-dead

The move comes after President Xi Jinping has urged local officials to help boost auto sales.

Edited February 19, 2020 by wrs

[0R0 + 6,251]

It isn't that absurd. There are some cities with few cases of the virus and they are slowly picking up work now that they have established some rules and procedures to reduce the chance of cross infections. 

China can have 780 mil. people on lockdown and still have a major economy. 

[Douglas Buckland + 6,308]

I think that would depend on any production bottlenecks created by locking down 780 million folks. Many of the people quarantined or industries shut down may be critical in the supply chain of other industries. Furthermore, additional ‘manpower’ will be redirected to support those quarantined...a knock-on effect.

[frankfurter + 562]

On 2/16/2020 at 11:59 PM, BLA said:

70 million Chinese still quarantined.

Is the virus ending or just starting ?

Worst case it's another Spanish Flu 1918 (originated in China) where over 500 million were infected and 50 million world wide died.  This was back when the world was much less populated and very little international travel and business.

A 100 year event ?

Foxconn continued closures are foreboding.

Some fear that the Chinese economy could collapse.  I kinda doubt that  . . . . but prepare for the worst, hope for the best. 

Oil prices can't escape this continued crisis. 

Don't be fooled by some Chinese independent refiners buying some inexpensive oil.  The short buying spree where China's government owned refiners turned away shipments won't last too long.  The Chinese independent refiners are like shale producers , over expanded, over leveraged.  Can't continue to buy spare oil much longer. 

I'm told as of the beginning of the year there was about 180 million bbls of spare storage capacity in China.  It will take a while to fill . 

1918 flu originated in China?  wrong.  origin was and remains unknown.

https://www.britannica.com/event/influenza-pandemic-of-1918-1919

Per China historical records, the virus was imported from India.  Imagine that? 

So far this year.. in USA... flu victims... 26 million patients... 250,000 hospitalised... 14,000 deaths. and the flu season is not yet over.

China's economy will be hit, obviously; but not collapse.   

[0R0 + 6,251]

On 2/16/2020 at 10:59 AM, BLA said:

Some fear that the Chinese economy could collapse.  I kinda doubt that  . . . . but prepare for the worst, hope for the best. 

 

Finances are collapsing, but there is a sea of money printing by the PBOC and banks with directives to save jobs. Shadow banking is being allowed back with few checks on it. It may be enough to put the lost month of February on the national credit card, along with the multitude of NPLs and bad bonds getting refinanced to avoid unemployment. Price inflation will pop even more substantially. 

On 2/16/2020 at 10:59 AM, BLA said:

The short buying spree where China's government owned refiners turned away shipments won't last too long.

China has a dearth of forex coming in. Exports are very much reduced, so they have to force the SOE oil companies like CNOOC and PTC to forgo deliveries, while teapot refiners can continue for now. Their SPR fill program is opportunistic, and they will do what they have to fill it up within the forex cash flow they do have. Right now, though, it is more trickle than flow.

[Ward Smith + 6,615]

Minerd, CIO Guggenheim Partners says China GDP will be -6% this year. We'll see. 

6 hours ago, frankfurter said:

China's economy will be hit, obviously; but not collapse.   

I'm still sticking with my "build a Chinese Strategic Petroleum Reserve" idea. In fact they should build several around the country. Don't count on the "storage" they've purchased from the Saudis. There's a whole Mountain of things that can go wrong between the Middle East and China. 

[Gerry Maddoux + 3,627]

1 hour ago, Ward Smith said:

I'm still sticking with my "build a Chinese Strategic Petroleum Reserve" idea.

They've got one, Ward. Our's holds about 750 m barrels. I think theirs is about 350 m.

[Ward Smith + 6,615]

4 hours ago, Gerry Maddoux said:

They've got one, Ward. Our's holds about 750 m barrels. I think theirs is about 350 m.

My understanding is a lot of that number sits in storage in the Middle East. It was brought up after the drone attack that Aramco "borrowed" from that storage to keep the supply chain flowing.