OPEC pledge to lower crude exports

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Oil prices are subdued to start the week, as the weekend’s compliance meeting has done little to allay oversupply fears. As WTI continues to trek on in forty-dollardom, hark, here are five things to consider in oil markets today:

1) OPEC members appear to have pulled a u-turn in relation to discussing production cuts via exports. When the production deal was initially announced, it was suggested that exports would not fully reflect production cut implementation.

We have now had some back-pedaling from key members in recent days: Iraqi oil minister, Jabbar al-Luaibi, said that the OPEC deal is based on exports and not output. Meanwhile, Saudi Arabia is insisting that it is exports, not production, that is key to the market rebalancing.

The chart below of total Iraqi crude export loadings (both northern and southern exports) serves to illustrate how much Iraq is currently complying with the OPEC production deal. Not a lot.  

Iraq crude exports ClipperData Mar 2017.jpg

2) The latest Chinese Customs data jibe with our ClipperData, showing that Saudi remained top supplier to China in February, as imports rose above 1.2 million barrels per day. The customs data also showed Angolan arrivals dropping to 850,000 bpd.

Our Brazilian data, differs, however. They see February imports at over 400,000 bpd. This is due to timing; we see Brazilian imports at 500,000 bpd so far this month – the highest on our records – as the discount of WTI to Dubai/Oman pulls Latin American cargoes to the Far East. Imports of Angolan crude so far this month have rebounded to above 1mn bpd, but still lag Saudi Arabian volumes.    

Saudi Angola Brazil crude imports China March 2017.jpg

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3) The chart below is from Barclays (via @chris1reuters), illustrating that oil producers have already hedged a good share of their 2017 production, but not much for next year. This is affirmed by Bank of America, who see U.S. shale producers having already hedged 30 – 40 percent of production this year, but very little of 2018’s volume. 

As the forward curve for WTI into 2019 drops below $50, producer hedging is likely to keep a lid on prices next year, as producers sell futures to take some risk off the table.    

hedging March 2017.jpg

4) A piece out today discusses how Asian refiners are snapping up cargoes of light crude amid favorable price differentials (as medium and heavy is in greater demand). We can see in the chart below that South Korea continues to pull in more and more light crude.

The lighter the crude, the greater the yield for lighter end products such as gasoline and diesel. Hence, lower relative light crude prices and higher product yields is a double-win for Asian refiners.  

South Korea crude imports ClipperData Mar 2017.jpg

5) Finally, the chart below is super, illustrating how offshore wind is set to boom – and predominantly in China and Europe. What is also super-interesting is the companies that are challenging utilities to build new wind farms: big oil. 

Royal Dutch Shell, Statoil and Eni are all looking to push into the wind farm space – given their experience with building projects offshore, as well as to hedge its business versus its leading competitor: renewable energy. 

offshore wind is booming.jpg