A supportive IEA monthly report has encouraged a Friday rally for black gold, Texas tea. As prices ping around in their current tight trading range, approaching resistance once again, hark, here are five things to consider in oil (…and LPG…and LNG!) markets today:
1) January saw yet another record month for U.S. LPG exports, with January loadings some 50 percent higher than the monthly average of last year (…which were 27 percent higher than 2015 levels). The U.S. has swiftly established itself as a global LPG supply hub in recent years; South Korea is the leading destination, accounting for 14 percent of export loadings, followed by Japan and China. Mexico is in fourth place, accounting for over 9 percent of flows.
While February loadings have not kicked off at the same breakneck speed that January did, there are a number of VLGCs (Very Large Gas Carriers) ballasting to the U.S. Gulf. Should these arrivals be punctual, export loadings will show a return to form next week, kicking around record levels again.
2) The IEA has just released its monthly Oil Market Report, with the overarching theme being that OPEC / NOPEC is being extremely disciplined in implementing production cuts. (various agencies are all singing from the same hymn sheet). Firm demand at the end of the year (in part influenced by colder weather in Europe) has caused total OECD inventories to drop below 3 billion (beeelion) barrels for the first time in a year.
The goal of OPEC / NOPEC production cuts has seemingly been to normalize inventory levels. Even though this isn’t playing out in the U.S. (hark, oil inventories less than 4mn bbls shy of their all-time record, gasoline inventories less than 3mn bbls away), a move back into the five-year range must be heartening for the cartel and its comrades, with the five-year average around 2.7 billion (beeelion) the next (ultimate?) target. That said, the IEA sees this target as unlikely.
Nonetheless, the IEA still expects production from Brazil, Canada and the U.S. to grow by 750,000 bpd, and by 400,000 bpd for total non-OPEC producers, once falling output is taken into account (Mexico, here’s lookin’ at you, kid).
U.S. shale production is projected to be 520,000 bpd higher by December versus year-ago levels, which seems a wee bit aggressive. (From our projections, prices would need to clamber and hold above $60//bbl for much of the year for this to happen). The agency has also given an upward bump to demand expectations, lifting it by 100,000 bpd for this year to 1.4mn bpd. A fairly price-supportive report on the whole.
3) There has been much chatter this week about the elevated level of U.S. crude imports, given the backdrop of ample supply. We’ve been fairly vocal in highlighting how OPEC members – and especially those in the Arab Gulf – have been putting their pedal to the metal, ramping up exports ahead of January production cuts.
As pointed out in this article, it takes