Market share battles persist

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As we shuffle into two weeks of lower trading volume over the holiday period, and as we await next month’s production cuts to start showing up in our export data (woot woot!), oil is looking decidedly undecided today. Hark, here are five things to consider in oil markets today.

1) The chart below shows how Russian volumes into China have ramped up considerably in recent years, via both pipeline and waterborne deliveries. The chart below is based on a 12-month moving average for flows. 

Russia Saudi 12m average.jpg

We can see in our ClipperData that much of the increase in Russian flows to China in the last two years have come from waterborne deliveries, and of Espo to teapot refiners in the northern part of the country. Saudi flows continue to hold firm, averaging just shy of 1mn bpd this year – vying with Russia and Angola to be China’s leading supplier.  

Saudi Russia waterborne exports to China ClipperData.jpg

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2) In a surprise announcement, Beijing has said it will not issue export quotas for independent refineries next year. Teapot refiners were granted licenses for the first time this year to export petroleum products – hot on the heels of them being allowed to import crude (rather than buying it through state-run companies).

Current quotas will expire this month, and apparently new quotas will not be issued, handing power back to China’s state-run oil companies (PetroChina, Sinopec, CNOOC). The rise of teapot refineries this year has been disruptive for both Chinese domestic and export markets, contributing to a product glut in Asia which has pressured refining margins lower. 

As our ClipperData illustrate below, Chinese product exports have tripled since the beginning of last year, not only disrupting the Asian market, but regularly heading as far afield as the U.S. West Coast. 

China product exports Dec 2016.jpg

3) The chart below shows how stock issuance by U.S. E&P companies has been completely nutty this year. As oil prices rise and bankruptcy fears dissipate, U.S. companies have sold more stock in 2016 than in the last two years combined.

US EnP issuance.jpg

4) We’ve talked about fossil fuel subsidies here a number of times before, but the chart below from the IEA sums it up excellently. With the fall in oil prices giving petro-states the impetus to remove subsidies, global fossil fuel subsidies dropped precipitously in 2015 to $325 billion, down from almost $500 billion in the year prior.

All the while, renewable fuel subsidies continue to climb, up to $150 billion – but still half that of fossil fuels. 

fossil fuel subsidies.jpg

5) Finally, last Monday we highlighted how speculative net length would likely increase to its highest since 2014 in the following release of CFTC data, and this is exactly what we have seen, with bullish bets on WTI via futures and options increasing to 303,661 contracts.

Regardless of the level of adherence by OPEC and NOPEC on the production cut front, hedge funds are expecting a bullish price response. 

WTI net length Dec 18 2016.jpg