Sell the rally one more time

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Yesterday’s emphatic rally in response to the biggest crude draw since Britney Spears was number one with ‘…Baby one more time’ (err, January 1999) is being unravelled as realization dawns that the factors that caused yesterday’s gargantuan draw were transitory in nature. Hark, here are today’s things to consider in energy markets:   

1) Our friends at The Fuse yesterday highlighted how U.S. imports are rebounding from OPEC this year, after dropping sequentially since 2010 with the rise in domestic production:

OPEC_share.jpgAccording to our model, U.S. domestic production peaked in May of last year, and OPEC imports have been on the rise pretty much since. Our ClipperData show U.S. imports from OPEC averaging 3.16mn bpd through August, up 19 percent versus year ago levels.  

The U.S. receives oil from eleven OPEC members (none from Indonesia, Iran). While Saudi leads the charge, sending an average of over 1.1 mn bpd so far this year, we have also seen crude arrive from OPEC’s newest member, Gabon, in January of this year (light sweet Rabi to the East Coast).

While Algerian cargoes were sporadic last year, we have seen seven consecutive months of light sweet Saharan Blend deliveries, while a number of deliveries of Libyan Sarir have made their way to Par Petroleum’s Kapolei refinery in Honalulu. While OPEC’s reach continues to be far and wide, it is matched by the U.S. and its appetite for their crude.


2) Tomorrow is September 10th, which marks the peak of hurricane season. As the fire chart below illustrates, we can pretty much rely on there being a named storm in the Atlantic at this time.

Despite last week’s pick up in tropical activity via Hurricane Hermine (and the volatility it has wrought on the oil market), we have once again traversed through a quiet Atlantic hurricane season. This is typified by current conditions; while there are two disturbances currently in the Atlantic, both have low probabilities of development over the next 48 hours. Our named storm looks likely to be errant this year.


3) Rumors and murmurs suggest that Iran’s production remains pegged around 3.6 million barrels per day for a third consecutive month, despite its best intentions. This should be confirmed in OPEC’s next monthly oil market report, which is released on Monday. This jibes with what we see in our ClipperData, which shows export loadings have plateaued after reaching 2.6mn bpd in May.

In keeping with other rhetoric from the likes of Iraq (as we discussed yesterday), Iran is willing to participate in a production freeze, but after increasing its production to a level which is considerably higher than it is currently. Previous expectations were a target of 4mn bpd, but an OPEC source suggested yesterday that it now wants to set its target as high as 4.3mn bpd. You couldn’t make this stuff up.

4) Time is not on my side today, hence just three things to consider. Well four – be sure to have a barnstorming weekend!