As production cut hopes are stoked once again, crude is pushing higher on this fourth day of the fourth week of January. While prices ultimately just pinging around in a range-bound fashion, hark, here are five things to consider in oil markets today:
1) So this week we’ve been taking a look at the various key regions that supply the U.S. with crude. We’ve looked at the Arab Gulf, South America and West Africa. North Africa is also a consistent, and growing, source of supply.
According to our ClipperData, the U.S. received just over 150,000 barrels per day of the region’s grades last year. Chad has been the leading supplier, sending its heavy sweet Doba mostly to the U.S. Gulf through the first half of the year, before switching in favorability and sending it to the East Coast, and to PES’ Philadelphia refinery.
Algerian grades are second most popular, with volumes of light sweet Saharan blend predominantly heading to the East Coast. Egyptian grades have become a more regular feature in the last year, while we see Libyan barrels make their way to Kapolei in Honalulu, as opposed to the lower 48 states.
2) The mighty Abudi Zein (ClipperData’s co-founder and CEO) is the author of the latest blog post on RBN Energy. We at ClipperData are in a great position to see whether OPEC and NOPEC members are complying with production cuts, given the most transparent way to see these cuts via lower exports.
While Abudi explains how Russia and Saudi Arabia may be able to implement certain methods to circumvent production cuts – via increasing pipeline flows and by refining more, respectively – he highlights that OPEC – and especially core OPEC – needs to be seen to be cutting production.
As our ClipperData illustrate below, total Arab Gulf exports have dropped by a million barrels per day (albeit from nosebleed levels last month), as exporters put their best foot forward (on the brakes).
3) Yesterday we discussed how the members of the Gulf Cooperation Council (GCC) raised $66 billion via debt issuances last year in an effort to plug the void left by lower oil revenues, and how they are likely to issue even more in 2017.
The opposite scenario may be at hand for the five supermajors, as a brighter outlook means they appear to have weathered the storm. As the chart below illustrates, the Big Five have doubled their combined net debt to $220 billion in recent years to maintain their dividends amid the oil price rout.
But after slashing costs by cutting jobs and canceling projects, and amid a rebound in oil prices, they are starting to generate cash once more. As Q4 earnings are set to be released, three of the five – Exxon, Chevron and BP – are set to post their first year-on-year increases in profits. Happy days, it would seem, are here again.
4) Even though it is like sticking a finger in the air to gauge the wind direction, I love looking at long-term projections from the likes of EIA, Exxon et al, to gain an understanding of future energy trends. Hence, it was fun to see the appearance of the BP Energy Outlook this week.
As the charts below illustrate, energy consumption is expected to continue growing over the next two decades. Renewables, combined with nuclear and hydro are expected to account for half of the growth in energy supplies over this period. Nonetheless, oil, gas and coal will still account for 75 percent of energy supplies in 2035.
Renewables are set to be the fastest growing source at 7.1 percent per annum. Coal is expected to peak in the mid 2020s before falling, while natural gas grows by 1.6 percent to 2035. Oil’s pace of growth gradually slows, rising 0.7 percent per annum.
Total energy consumption is set to grow at a pace of 1.3 percent per annum over the next two decades, slower than the 2.2 percent pace seen in the last 20 years. Virtually all of the growth is set to come from emerging economies, with China and India accounting for half of the rise.
5) Finally, we discussed last week how ADNOC, the Abu Dhabi National Oil Company, had just renewed an agreement with the Japanese government to store 6.3mn bbls at its Okinawa site, to give it easy access to Asian markets – with the concession that Japan gets a priority claim to its oil in case of emergency.
In a similar fashion, ADNOC has just signed a deal with India, which will allow it to store ~6 million barrels of oil at its Mangalore strategic reserve. This is about half the capacity of the cavern, and there is likely a similar concession in place for India to access the crude.
The other half of the Mangalore facility is already filled with 6mn bbls of Iranian crude. India’s strategic reserve has a capacity of 37mn bbls at three locations; some 7.55mn bbls of Iraqi crude are already in the Vizag storage site in southern Andhra Pradesh, while there is a further 18.3mn bbls of capacity to be filled at Padur.