Record US inventories weigh on oil

Mar 8, 2017 11:52:10 AM EST

As U.S. crude inventories jump to a further record high, prices are chugging lower once again. A backdrop of strong economic data is also helping to sweep crude lower, via the broom of a stronger dollar. As focus shifts back onto weaker U.S. fundamentals, hark, here are five things to consider in oil markets today.  

 

1) In the last few blogs, we've been discussing some of the 'problem' grades in Nigeria - such as Qua Iboe and Forcados - which have been stymieing both production and exports. One grade where we have seen strength from is medium sweet Bonga. That is, until now.

Shell has just announced that it has halted production at its Bonga field in Nigeria to undertake maintenance, which is expected to last at least a month (production is expected to return in April at some point). According to our ClipperData, Bonga export loadings averaged 155,000 barrels per day in 2015, before rising over 20 percent in 2016 to 187,000 bpd. After November's volume reached the highest on our records, Bonga loadings look set to tank as we skip through spring.  

That said, a VLCC carrying ~1.9mn bbls of Bonga was loaded at Shell's Bonga FPSO on March 5, heading to the Lome Lightering Zone. This is likely the last loading before maintenance kicks in.  

export loadings of Bonga ClipperData Feb 2017.jpg

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2) As U.S. crude imports rose last year, we saw some more unusual grades arriving on U.S. shores. Import volumes from the North Sea rose by nearly a third last year, as different grades arrived every month except May. The majority of this crude has made its way to the East Coast, while eight cargoes of North Sea heavy sour crude (think: Captain, Grane and Harding) arrived in the U.S. Gulf.

So far this year, our ClipperData show that Brent Blend, Ekofisk and Oseberg has discharged on the East Coast, while a delivery of both heavy sweet Clair and heavy sour Captain has arrived on the U.S. Gulf Coast.  

US crude imports North Sea grades.jpg

3) Today's weekly EIA inventory report runs the gamut in terms of extremes, with a huge 8.2 million barrel build to crude stocks tilted bearish, large draws to the products bullish. The crude build was bolstered by rebounding imports, with a huge 4.6mn bbl build to crude stocks on the West Coast.

As for the draws to both gasoline and distillates, lower refinery runs were exacerbated by higher implied demand. While total gasoline and distillate inventories sit at their respective five-year highs, the East Coast remains flush, while Gulf Coast exports drain PADD3 product inventories instead.   

PADD3 gasoline Feb 2017.jpg

4) The Russian economy has apparently exited from its longest recession in two decades, in part aided by a rebound in crude prices. Oil wasn't entirely responsible for the turnaround, however. 

While oil and gas accounted for 40 percent of Russian government revenues last year, growth from other industries have helped bolster government coffers (hark, below).  A broader economic recovery should be seen this year, as long as inflation continues to tick lower, and domestic demand higher.  

Russia growth oil and gas Feb 2017.jpg

5) Finally, we finish where we started: with Nigeria. The West African nation is looking to increase renewables in its energy mix to 23 percent by 2025, up from 13 percent in 2015. As the chart below illustrates, fossil fuels account for the majority of Nigeria's generation mix, while renewables have shown little growth over the last decade. This could change, however, as the government is set to reach a decision this month on allocating funds for solar power installations, including as much as 1,200 MW of off-grid solar


Nigeria generation mix.jpg

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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