In May, Saudi Arabia exported almost 6.2 million barrels of crude oil each day. This was a 1.2% increase compared to last year and a small rise from April. The boost in exports came as oil production jumped to 9.18 million barrels per day, in line with the OPEC+ agreement. Meanwhile, refinery processing fell by 7.6% to 2.72 million barrels per day.

Oil Product Exports Increase

Oil product exports went up by 12.2% from last year, reaching 1.37 million barrels per day. This growth was driven by higher gasoline and aviation fuel exports, even though diesel exports saw a small decline. Diesel still remained the biggest export, averaging nearly 600,000 barrels daily. Additionally, Saudi Arabia’s crude oil use for electricity generation rose by 23% compared to last year, totaling just 48,000 barrels per day. June’s data will reveal if the surge in production has led to more overall exports, especially with increased shipments to China. These numbers highlight a strong oil export market in Saudi Arabia, particularly with a possible increase hinted at for June. Given the rise in production and exports, we believe the market is well-supplied for now. This may put downward pressure on front-month futures contracts. Traders might want to consider buying near-term put options or creating bear put spreads to take advantage of possible price declines in the coming weeks. However, the recent OPEC+ meeting indicated plans to start easing production cuts in October. This guidance has created a bearish sentiment for longer-term contracts, possibly leading to a divergence in the futures curve. We see a chance in calendar spreads that could be profitable due to this expected change in market dynamics later in the year.

Demand And Price Volatility

Matching this supply outlook is strong demand. A recent report from the U.S. Energy Information Administration (EIA) showed an unexpected decrease in crude inventory of 3.6 million barrels. Additionally, China’s crude imports have consistently remained above 11 million barrels per day for the past few months, absorbing more global supply. We believe these signs of demand could help sustain prices through the summer driving season, making call options a smart strategy for those betting on consumption exceeding supply for now. The mixed signals between current demand strength and anticipated supply increases could lead to increased price volatility. This suggests the CBOE Crude Oil Volatility Index (OVX), recently around 25, might rise. We recommend strategies that benefit from price swings, such as long straddles or strangles, for traders expecting significant price movement in either direction. Historically, clear indications from producers about future output increases have often caused market sell-offs as traders rush to factor in the additional barrels. Therefore, it’s wise to be cautious about holding unhedged long positions that extend into the last quarter of the year. Adding protective puts for contracts that expire in late 2024 appears to be a smart risk management strategy. Create your live VT Markets account and start trading now.

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