OPEC cuts to the core?

Jan 6, 2017 12:26:42 PM EST

Happy Nonfarm Friday! It is the first Friday of the year, hence we get our first monthly dose of official US employment data. Job creation last month was below expectations, but was offset by upward revisions to prior months, while wage growth also improved to the fastest pace in seven years, adding a positive hue to the report.

Dollar strength off this report is helping to keep crude in check, while the market avidly searches for the manifestation of OPEC production cuts. Hark, here are five things to consider in oil markets today: 

1) Considering it seems to be national 'focus on core OPEC cuts' week, it seems prudent to assess where current flows of crude from Saudi Arabia, UAE and Kuwait are going, given the three cartel comrades are set to cut production by their committed volumes of 486,000 barrels per day,  139,000 bpd and 131,000 bpd, respectively.

Our ClipperData show the three send three-quarters of their crude exports into Asia. Half of all their total exports go to East Asia (Japan, China, South Korea), while Southeast Asia, South Asia, and North America (overwhelmingly the U.S.) account for another 37 percent of total exports:     

Saudi UAE Kuwait exports ClipperData 2014 to 2016.jpg

2) In terms of where this crude is going specifically, our ClipperData show Japan is the leading destination for both Saudi Arabia and UAE flows, while South Korea is the leading home for Kuwaiti exports. China just edges out South Korea to be the second leading destination from the three Gulf states after Japan, with the top five destinations accounting for the majority of exports - although forty different countries in total received crude from the three last year.

Saudi kuwait uae leading destinations Dec 2016.jpg

3) According to customs data, China received 620,000 bpd of Iranian crude imports through November of this year. This matches with our ClipperData, which shows virtually the same volume of arrivals. Although southern China generally sees the least Iranian crude, its share has been increasing, with arrivals last month being fairly evenly split across the three key regions (hark, below). 

With supply contracts being renewed and ongoing joint ventures between Iran and China, exports to China are expected to continue rising this year - especially with Iran exempt from OPEC production cuts. 

Iran oil exports to China ClipperData Dec 2016.jpg
4) Even though China's crude imports continue to rise, and its appetite for natural gas continues to increase, China's National Energy Administration is committing to invest a whoppingly whopping $361 billion into renewable power generation in the country by 2020.

As pollution remains a key issue in the country, and as the cost of solar power continues to drop, a shift towards renewables will pay dividends from both an economic and social perspective. Nonetheless, renewables will still only account for 15 percent of overall energy consumption by 2020, while fifty percent of power generation will still likely come from coal. 

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5)  The mighty Abudi Zein (ClipperData's CEO) and myself will be presenting our 2017 outlook in Houston and New York next week. Although we are sold out for Houston, we have a couple of places left for New York on Thursday (12th) for analysts or traders. Sign up here to attend! 

About the Author

Matt Smith

deciphers and distills what is most relevant across the energy complex into cohesive and pithy knowledge you can use. The belly laugh is a bonus.

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