U.S. crude exports impact regional pricing

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Oil prices are moving back toward the top of their recent trading range, looking to muster a test of resistance once more. As positivity abounds amid new intraday record highs for U.S. equity markets, hark, here are five things to consider in oil markets today:

1) There were a couple of things to note from this week’s monthly release from the EIA, the Short Term Energy Outlook (STEO). One is an upward adjustment to both Chinese oil consumption and supply, as well as the tweaking of some other consumption estimates for other non-OECD countries.

The result of which has lead to a tightening in its market expectations; rather than stock builds over the next few quarters, it now views the market to be largely in balance. 

EIA market balance feb 2017.jpg

2) The report also references the start-up of U.S. crude exports from Occidental’s Ingleside terminal, which kicked off late last year. Producers in the Midland region of West Texas are able to ship crude to Corpus Christi and the export terminal via the Cactus pipeline – bypassing the pipeline crossroads of the world that is Cushing.

This development has meant that the price of WTI Midland has strengthened versus similar grades at other delivery hubs. This can be seen in the chart below, with WTI Midland reaching parity with LLS (Light Louisiana Sweet) prices in recent months, while moving to a premium versus WTI Cushing.

US price spreads EIA feb 2017.jpg

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We can see from our ClipperData that the Ingleside terminal has ramped up loadings since starting exports in November. So far, we have seen twelve loadings, totaling over 8 million barrels, heading as close as Canada and the Caribbean, to as far away as China. 

Occidental Ingleside exports ClipperData feb 2017.jpg

3) The STEO also highlighted the fact that gasoline crack spreads on the U.S. Gulf Coast are stronger than those seen for New York Harbor-based Rbob, as rising exports buoy margins amid modest demand. In fact, U.S. Gulf Coast gasoline crack spreads have risen to a record high for the month of January, as U.S. Gulf gasoline exports continue to hold above 1 million barrels per day.

US Gulf coast gasoline minus LLS.jpg

4) We can see the strength from gasoline exports in our ClipperData. On a monthly basis, they climbed to the highest level on our records in December at over 1.3mn bpd. The top five destinations accounted for 62 percent of exports last year, up a couple of percent on the year prior.

All five of the leading destinations are in fairly close proximity (although number six, Japan, is not). December’s spike was driven by both Mexico and Brazil, who received the highest monthly volume of gasoline on our records. 

top 5 gasoline exports.jpg

5) We’ve been on a bit of a renewable kick this week, looking at long-term global forecasts, as well progress in Germany. Today we take a look at wind power in Europe, as installed capacity for it passed coal for the first time ever last year.

As more wind power was installed than any other form of energy, and coal plants have been decommissioned, wind has blown by (see what I did there?) coal capacity. According to WindEurope, investment in wind turbines grew to 27.5 billion last year, up 5 percent on the prior year. 

Nonetheless, due to the intermittent nature of wind power, coal still maintains a larger share in total power generation.

wind passes coal in Europe feb 2017.jpg