Oil is finding some support thus far today off the back of the IEA's monthly oil market report, which pointed to a tightening market amid OPEC production cuts. Hark, here are five things to consider in oil markets today.
1) In a similar fashion to yesterday's OPEC report, IEA has boosted Iraqi oil production to a record last month; OPEC's secondary sources had production pegged at 4.63 million barrels per day, while the IEA today has it at a very similar 4.64mn bpd. Production based on direct communication has it an even higher 4.83mn bpd.
As our ClipperData illustrate below, exports are kicking around 4mn bpd, when including both northern and southern Iraqi loadings.
2) The IEA's report was optimistic for demand, boosting demand growth for 2016 by 110,000 bpd to 1.5mn bpd, driven by colder weather in Europe in Q4, and Asian demand growth. This pace is set to slow to 1.3mn bpd this year.
While the agency is falling in line with recent evidence of rising US shale production, it again highlights something we pointed to yesterday - that Brazilian production should show a firm increase this year; combined with Canada, it is expected to grow by 415,000 bpd. Non-OPEC production is expected to grow by 380,000 bpd this year - higher than OPEC's estimate of +120,000 bpd.
In terms of OPEC last month, it sees production falling by 320,000 bpd, led by Saudi (intentional, well, seasonal) and Nigeria (maintenance, strikes, geopolitics). Interestingly, it also sees Iranian production slipping to 3.72mn bpd, after peaking in October; we see in our ClipperData that exports topped out at this point also - and have been considerably lower since, even as floating storage has dropped.
3) This is unashamedly nerdy, but it's super-interesting (and nutty) to see that Saudi Arabia and UAE account for 60 percent of crude imports into Japan. Although it has been surpassed by India last year, Japan is still the fourth largest importer in the world.
Saudi and UAE have strong ties to Japan; they both lease crude storage in Okinawa. Saudi has been storing crude in Okinawa since February 2011, and back in September, it expanded its agreement with the Japanese government by 2mn bbls to store up to 6.3mn bbls. The Japanese government provides the storage space for free, on the proviso that it gets a priority claim on the oil there in case of emergency.
It has just been announced overnight that the Abu Dhabi National Oil Company (ADNOC) has had its agreement to store the same volume, 6.3mn bbls, extended to the end of 2019 - after it was set to expire at the end of this year. UAE has been storing oil at Okinawa since 2009, even longer than Saudi, giving it easy access to Asian markets. Over 30 percent of UAE's crude exports go to Japan, while only 13 percent of Saudi's exports head there.
4) After slashing costs in the last two years amid the oil price slump, Cnooc is set to raise capex to 70 billion yuan, after it dropped to 50 billion yuan last year, the lowest since 2009 (hark, chart below). The company produced 470mn bbls last year, and has a production target of 450-460mn bbls for this year; last year was its first output decline since 1999.
As we discussed earlier in the week, Chinese domestic production is under threat of further shrinkage; 54 percent of Cnooc's capex this year will be invested in domestic production. Some 64 percent of its total production is produced domestically, with other projects as far afield as the Gulf of Mexico.
5) Despite its focus on renewables, natural gas is the largest source of power generation in Mexico, with more than 60 percent of capacity additions through 2020 to come from the fuel. Natural gas currently accounts for 54 percent of Mexico's power generation, up from 34 percent in 2005: