Crude prices are getting up off the canvas after being knocked down yesterday, helped up by a falling dollar ahead of lots of Fedspeak. Nonetheless, prices are holding in their tight range, as OPEC compliance seems to have more holes than a donut factory, while dollar strength should return soon as a U.S. March rate hike looks increasingly baked into the donut cake. Hark, here are five things to consider in oil markets today:
1) Indications continue to point to non-compliance of production cuts from OPEC members. Surveys indicate Saudi Arabia is doing the heavy lifting while others kick back and relax (hark, here and here). From our ClipperData perspective, the cartel on the aggregate appears to be showing little compliance via its exports; it continues to keep the market well-supplied, especially Asia.
OPEC export loadings bound for East Asia (think: China, South Korea, Japan) have reached the highest on our records for February, despite the cartel being in the full throes of a coordinated production cut. Flows to the rest of Asia edged slightly higher, but nowhere near as pronounced.
As our ClipperData helps illustrate below, OPEC sends mostly light crude into Asia (>70 percent). With Saudi Arabia lowering its OSP (official selling price) for its Arab light into Asia next month, it highlights its ambition of continuing to battle for market share. Other Middle East producers should follow suit.
2) We’ve discussed Angolan flows in recent weeks, and how they are rebounding of late after reflecting full compliance of the OPEC production cut in January. Checking in with its West African compatriot, Nigeria, we can see that loadings are still rebounding lowly December levels, buoyed by the return of ‘problem’ grades.
Last year, we saw exports drop off as Nigeria suffered from sabotage and unplanned outages, which affected the crude streams of Bonny Light, Brass River, Forcados and Qua Iboe.
Exports of these grades averaged 820,000 bpd in 2015, before dropping to 500,000 bpd last year. Although loadings of these problem grades are considerably below year-ago levels, they have recovered from the lows seen last summer. Should we see a continued return to strength, it will likely propel Nigerian crude export loadings close to the 2mn bpd mark.
3) While the supermajors continue to show caution in their capex plans, Exxon Mobil is looking to increase its spending to average $26 billion over 2018 – 2020, up from $22 billion this year. A good chunk of this change is to be invested into shale: some $5.5 billion will be spent this year drilling in Texas, New Mexico and North Dakota, with spending rising higher from hereon out. Exxon says it can turn a profit at an oil price of $40 by tapping its vast inventory of wells in these states.
4) The below graphic from the latest EIA natural gas weekly is pretty neat. It highlights how US liquefaction is set to increase in the coming years, and from which export terminals. While a warm winter may have anchored us in two-dollardom for now, structural demand growth from pipeline exports to LNG exports to power generation and industrial demand could lead prices higher going forward…unless production can keep up.
5) Finally, pun of the day goes to ‘Gust Belt’ from this article on wind power in Texas. We looked a few weeks ago at how wind capacity in Europe has surpassed that of coal for the first time (more due to coal plant retirements as opposed to wind capacity growth); wind power is showing a similar ascendancy in Texas.
While it still only accounts for 13 percent of total Texas electricity generation – due to its intermittent nature – it is helping natural gas-fired generation steal share from coal. As electricity demand in Texas continues to grow, spare generating capacity of 20 percent (of peak summer demand) should continue to shrink in the coming years. That said, rising renewable generation from both wind and solar in the Lone Star State are set to increase going forward.