As the latest inventory report comes back into focus, and as OPEC murmurs and rumors persist, oil prices are rallying once more - further aided by a pinch of dollar weakness. Hark, here are five things to consider in oil markets today.
1) In a surprising turn of events, Mexico has not been importing any U.S. crude oil, despite winning special dispensation last year to do so (prior to the lifting of the U.S. export ban). It was expected to send its heavier crude to the U.S., while in return bringing in higher-quality U.S. light crude.
It appears there is no room in Pemex's slashed budget to import U.S. crude, given the budget has been cut by $8.7 billion in the last two years. There is also skepticism that the refineries are not in a good enough state to deal with the lighter crude - while infrastructure to move the crude is also lacking. The lifting of the U.S. oil export ban has also buoyed prices to be more in line with global benchmarks, an unfortunate development for Pemex.
Mexico's six refineries are said to be running at ~60 percent capacity, amid 35 unscheduled outages in the first quarter. Hence, Mexico is importing increasing volumes of U.S. gasoline instead. As the chart below illustrates, our ClipperData show gasoline and blending components imports into Mexico have been higher every month so far this year compared to year-ago levels, and are 32 percent higher in terms of volume.
2) In the last few weeks we have been discussing how Asian coal prices have been on the rise - driven by Chinese demand amid lower domestic production. Hence the triumvirate of charts below are a nifty summary of the Chinese situation; prices are rising as China increases imports to offset falling domestic production.
The reason for the drop in production has been new mining restrictions; the State Administration of Work Safety has limited the number of days coal miners can work from 330 to 276 days per annum. The restriction has caused Chinese coal production to drop by 14 percent in the second quarter, while a corresponding rise of 17 percent in imports was seen year-over-year. This drop in production has come just as the steel industry has been rebounding, spurring on coal demand, while coal demand for power generation is at its seasonal peak.
3) The energy-related headline of the week thus far has to go to 'Love of fried food could curb India's crude oil imports', a piece about how India could make at least 2 million tons of biofuels annually (46,000 bpd) by processing cooking oil from restaurants.
The government estimates that oil imports could be reduced by 10 percent via increased biofuel consumption; Indian oil imports are ~4mn bpd so far this year, according to our ClipperData. According to Oil Ministry data, India consumes ~510,000 bpd of gasoline, and ~1.74mn bpd of diesel.
4) Following on from the above theme, a story about how Iran is going to lose market share in India to Russia (amid a joint venture with Essar) sent me digging into our ClipperData once more. We have highlighted before how the vast majority of India's oil imports come from OPEC members. While Saudi Arabia accounts for ~20 percent of oil imports, Iraq has been matching it this year, vying for the spot of leading supplier.
But while Iran may have picked up its deliveries to India so far this year, it is still lagging behind its cartel compatriots Venezuela and Nigeria (both ~10 percent), but just ahead of UAE.
5) Finally, we get the EIA's short term energy outlook today, swiftly followed by OPEC's monthly oil market report tomorrow, swiftly followed by IEA's oil market report on Thursday. These, combined with tomorrow's inventory report, are set to drive market sentiment.