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Expect Much Tighter Oil Markets

April 26, 2018

Expect Much Tighter Oil Markets

offshore rigs

As oil prices hover close to multi-year highs, Saudi’s Oil Minister has hit the wires saying that OPEC ‘shouldn’t be complacent and listen to some of the noise such as mission accomplished‘ . Just as we learned earlier in this economic cycle via ‘don’t fight the Fed’, we too should take heed: ‘Don’t fight the Falih’.

Year-to-date, U.S. crude inventories have risen by 3 million barrels, compared to 53 million barrels for the same period last year. Our seasonal Q1 build has been distinctly errant.

While a number of factors can be assigned for such a lack of upward trajectory (higher exports, stronger refinery runs, lower waterborne imports), the slashing of crude flows to the U.S. from Saudi Arabia has also played a part. Saudi crude deliveries were down over 50 million barrels year-on-year in Q1, a third consecutive quarter of considerably lower year-on-year imports.

The aforementioned combo of higher exports, stronger refinery runs and lower waterborne imports have colluded to leave Q1 U.S. crude inventories 110 million barrels lower than end-March last year. (Granted, this is from a high-water mark indeed – the absolute record of U.S. crude inventories at 535.54 million barrels, but hey).

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In 2017, Saudi crude deliveries to the U.S. dropped by 160,000 bpd versus the prior year. Meanwhile, total OPEC deliveries to U.S. shores in both 2016 and 2017 averaged ~3.2 million barrels per day, with imports last year really strong in the first half of the year, before taking a dive in the second half (hark, below).

In Q1 of this year, OPEC deliveries averaged close to 2.7 million bpd, down nearly 20 percent on year-ago levels and the lowest quarter since Q3 2015. This is both a combination of OPEC reining in supplies, and a lesser need from U.S. refiners for OPEC barrels, as they lean as heavy as they can on soaking up rising domestic production.

…click on the above link to read the rest of the article…

OPEC Exports To The U.S. Continue To Decline

March 10, 2018

OPEC Exports To The U.S. Continue To Decline

OPEC

In the latter half of last year, we highlighted how Saudi deliveries to Motiva’s Port Arthur refinery had been surpassed by Iraqi barrels for the first time on our records. While this trend has now reversed, when it comes to total OPEC flows, the more things change, the more they stay the same.

As our ClipperData illustrate below, Iraqi flows outpaced Saudi deliveries last September into Motiva’s Port Arthur refinery, the largest in the United States. This was, however, more a function of lower Saudi flows to the refinery, which dropped under 33,000 bpd after averaging close to 200,000 bpd through the first eight months of the year.

Iraqi flows into Motiva rose through the first half of the year, but have since come off, with a complete absence in the first two months of 2018. Despite lower total Saudi imports to the U.S., normal service was resumed to Port Arthur to close out 2017, and Saudi barrels ended up accounting for around 70 percent of total deliveries to the refinery last year – in keeping with the level seen in recent years.

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As Saudi has dialed back on its flows to the U.S., we have seen a change in imports to a couple of key destinations. After sending an average of 140,000 bpd to Marathon’s Garyville refinery in the first seven months of last year, deliveries have dried up completely since.

On the flip side, after averaging 95,000 bpd through the first seven months of last year, Iraqi arrivals at the refinery have increased to 150,000 bpd in the last six months, after neither Iraqi nor Saudi crude was discharged at the refinery in August.

As Iraqi deliveries to Motiva have dropped off amid higher Saudi flows, Iraqi barrels have ramped up into Garyville instead.

…click on the above link to read the rest of the article…

China’s Natural Gas Consumption Soars

December 21, 2017

China’s Natural Gas Consumption Soars

Natural Gas

Chinese natural gas consumption surged through the first 11 months of 2017, up 19 percent year-on-year.

China is the third largest consumer of natural gas in the world, behind the U.S. and Russia, and is expected to show the strongest demand growth over the coming decades—propelling it to second place by 2040.

As the nation’s industrial and residential sectors pivot away from coal (think: smog), natural gas demand is going through the roof, with domestic Chinese LNG prices reaching a six-year high in recent weeks.

One data point that highlights these tightening fundamentals is how CNOOC just rented a convoy of 100 trucks to transport LNG thousands of kilometers to northern regions in China to fill supply gaps.

Driven by this recent rampant rise, China is now the second-largest importer of LNG globally. Spiking demand has lifted Northeast Asian spot LNG prices above $10/MMBtu.

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Last year, China met 64 percent of its natural gas needs from domestic production. Even though projections suggest that domestic natural gas production will triple by 2040 (courtesy of the largest shale gas reserves in the world), around a third of its needs are met—and will continue to be—by pipeline flows and LNG imports.

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As demand continues to rise, Chinese LNG imports have outpaced year-ago levels in every month of this year, as highlighted by ClipperData below. While demand is seen nearly 20 percent higher in 2017, LNG imports have jumped nearly 50 percent. LNG imports reached an outright record in November, at 4.5 million metric tons:

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Australia is the leading source of Chinese LNG imports, accounting for basically a half of receipts this year. Qatar, the world’s leading LNG exporter (for now) is in second place, accounting for 20 percent of deliveries. Malaysia, Indonesia and Papua New Guinea round out the top five—accounting for 90 percent of all imports in 2017.

…click on the above link to read the rest of the article…

Oil Prices Fall Fast On Huge Inventory Build

March 23, 2016

Oil Prices Fall Fast On Huge Inventory Build

Two hundred and twenty-two years after Josiah G. Pierson patented the rivet machine, and the oil market remains as riveting as ever. (I’m here all week, folks). After yesterday’s API report gave a flourishing hat-tip towards a large build to crude stocks and a large draw to gasoline, oil is sliding amid a stronger dollar, while gasoline is pushing higher. Here are some things to consider today:

Jumping straight into economic data, the most insights we’ve had overnight have come from Brazil. Its mid-month inflation print dropped into single digits (at +9.95 percent), but still close to a 12-year high. Meanwhile, its unemployment rate jumped to 8.2 percent, its highest level in nearly 7 years.

Economic weakness in Brazil is strongly tied to the performance of the underlying resources it is rich in. Hence, as the price of key commodities for the South American country – such as soybeans, iron ore and crude – have headed south, so has its economy. As the chart below illustrates, the fate of the state-run oil company Petrobras tracks closely with oil prices. Hence as oil prices have charged lower, it is no surprise to hear this week that Petrobras has reported its biggest ever quarterly loss of $10 billion in Q4 of 2015, due to asset write-downs amid falling oil prices.

(Click to enlarge)

We have U.S. weekly inventories on deck this morning, with last night’s humongous API crude build of 8.8 million barrels adjusting expectations ahead of today’s number. The API report also yielded a large 4.3 million barrel draw to gasoline stocks, pointing to a drop in refinery utilization (read: refinery maintenance) amid destocking from the winter to the summer blend. As we mentioned yesterday, our ClipperData showed strong crude imports last week amid a wealth of waterborne arrivals into the U.S. Gulf, tipping us off to a crude build.

…click on the above link to read the rest of the article…

Global Oil Production On Pause, But Decline Seems Imminent

February 5, 2016

Global Oil Production On Pause, But Decline Seems Imminent

One hundred and seventy-six years after the birth of John Boyd Dunlop, and the crude complex is coming under pressure again.

It is Nonfarm Friday, which means that the market is all a’flustered, digesting the soon-to-be-revised official monthly U.S. unemployment report. The report was fairly underwhelming from a headline perspective; only 151,000 jobs were created last month, versus an expectation of 190,000.

That said, there was some solace to be found for those of a glass half-full persuasion, as not only did the unemployment rate tick to a new eight-year low of 4.9 percent, but average weekly hours worked ticked higher, and the participation rate continued to clamber away from multi-decade lows, reaching 62.7 percent. A little bit for everyone here.

U.S. unemployment rate, 2007 – present (source:investing.com)

Related: The $2 Trillion Gift From Oil Companies To Consumers

Perhaps the most interesting statistic of the day, however, has come from Wood Mackenzie, who says that only 0.1 percent – or 100,000 bpd – of global oil production has been curtailed thus far due to the price slump. It says this drop, albeit modest, has come from the Canadian oil sands, U.S. conventional production, and from the UK’s North Sea.

Wood Mackenzie estimates that 2.2 million barrels per day of Canadian production is currently ‘cash negative’, while so is 230,000 bpd of Venezuela’s heavy oil production, and 220,000 bpd of production from the North Sea. It is also important to note that although we are not seeing considerable production losses, we are seeing a lot of oil being left in the ground that otherwise would have been extracted.

Production on pause, so to speak. It would seem that 100,000 is the number of the day, as it is also the number of job losses seen from the U.S. oil and gas industry since October of 2014.

…click on the above link to read the rest of the article…

 

Petro States Dipping Into Coffers As Oil Price Reality Kicks In

January 11, 2016

Petro States Dipping Into Coffers As Oil Price Reality Kicks In

Fifty-two years after Johnny Cash’s “Ring of Fire” became the first country album to top the US pop album chart, and the crude complex is stuck in a vicious circle once more.

We have nada-nothing-nil on the economic data front today, as is the way after the first-week-of-the-month-economic-data deluge, although Q4 earning season kicks off after hours today with Alcoa up first, as usual. It won’t be until next week, however, when we really get into the full swing of things on the earnings front.

China’s equity market continues to have a torrid time of it, selling off a further 5.3 percent to start the new week. While European and U.S. equities are looking less ruffled by this news, the crude complex is being dragged lower once again – stuck in a tractor beam, being pulled toward the $30 level it would seem. Gasoline is trying to buck the trend, pushing higher after last week’s inventory report-sponsored plunge.

Related: Statoil CEO: Expect Volatility Now, Price Spike Soon

The chart below is from Capital Economics, and it addresses the current issue of Chinese economic weakness.

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The key point they are expressing (via Twitter) is that although China’s financial markets may be in turmoil, their economic indicators for the most part haven’t shown deterioration since the equity market peaked mid-last year:

While oversupply has been a key driver behind the oil market crash over the last eighteen months, another huge influence has been a strengthening US dollar. Hence, regardless of oil market fundamentals, if you think the U.S. dollar is going to continue strengthening this year, then you have to think that oil prices will continue to trundle lower. (Morgan Stanley do).

…click on the above link to read the rest of the article…

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