Hell for leather

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The phrase ‘hell for leather‘ first appeared in the Rudyard Kipling story, ‘The Valley of the Shadow’, relating to riding on horseback, and defined as ‘breakneck speed, or with reckless determination’. This is a more than adequate way to describe the crude exports of Saudi Arabia, UAE and Kuwait in the past month.

While 2016 can be defined as the year that OPEC threw in the towel versus U.S. shale, it is also the year in which OPEC crude exports have consistently achieved new record highs – ahead of a coordinated production cut.

Early surveys for OPEC production in December point to a drop in output (see here and here) – but this would appear to be led by falling Nigerian flows, as opposed to material losses elsewhere. Our ClipperData affirms the Nigerian drop; a combination of maintenance, worker strikes, and militant attacks in recent months have reduced crude exports to be back in line with September’s volume – in itself a three-year low: 

Nigeria crude exports ClipperData Dec 2016.jpg

Even though the core OPEC members of Saudi Arabia, UAE and Kuwait have committed to a production cut of 756,000 barrels per day, as part of the OPEC / NOPEC commitment to balance the market, they have still ramped up crude exports right up until the last minute.

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This ‘pedal to the metal / hell for leather’ approach (which we highlighted on CNBC yesterday) is illustrated in our ClipperData. Both Saudi Arabia and UAE crude export loadings reached a record in December, while Kuwaiti exports were at a 13-month high. The three cartel members loaded nearly 13 million barrels per day last month:

Saudi uae kuwait exports clipperdata dec 2016.jpg

We are not suggesting that OPEC won’t comply with their allocated production cuts; we are just highlighting the fact that spigots have been fully open right up until the very last minute. In fact, we are already hearing rumors and murmurs of compliance from our three core cartel members, Saudi ArabiaKuwait and UAE.

Instead, the key takeaway is that the OPEC production cut is just offsetting part of the ramp up of the last year. OPEC has committed to cut output by 1.2 million barrels per day for the first six months of this year; this volume simply mirrors the prior rise in exports from Saudi, UAE and Kuwait in 2016.