Crude prices are coming under selling pressure once again, as oversupply concerns dwarf OPEC production cut expectations. As equity markets join oil prices in charging lower, hark, here are six things to consider in oil markets today.
1) In the first two months of the year, in the aftermath of the OPEC production cut, Middle East producers have chosen to keep Asian customers well supplied, by swinging their exports east of the Suez. This is illustrated in our ClipperData below, which shows January loadings bound for Asia from Saudi Arabia and Iraq were nearly 800,000 bpd higher than October's reference level, while flows heading west of Suez to North America were up just 50,000 bpd.
This has flipped in March, however, with loadings bound for North America rising nearly 800,000 bpd versus October's benchmark, while loadings bound for Asia are down nearly 300,000 bpd. We have said before that China is such a big market participant that it 'makes the weather' - dictating global flows - and it appears to be doing so again.
China's demand for Saudi and Iraqi crude was primarily the driver behind the spike in crude loadings to Asia in January; its waning appetite in March has given way to Middle East loadings swinging west once more.
2) The chart below is pretty cool, showing how much more sand is being used as proppant per U.S. well. The lateral length of an average well in the Permian basin rose to 6,600 feet in Q3 2016, up from 5,700 feet two years previously.
Not only was more sand needed to fill each lateral, but more sand was used per foot in Q3 2016 than in the two years prior. Hence, sand per well rose by 59 percent to 5,500 tons.
3) We've talked recently about how some Middle East producers may be ramping up product exports to try and offset lost revenues from lower oil exports due to the OPEC production cut.
Different dynamics are at play in Asia, where increasing Chinese gasoline and distillate exports are eating the lunch of other refiners in the region. Japan is well aware of this threat, putting together a task force of energy experts to address the situation. As Japanese domestic demand drops amid a switch to electric hybrid vehicles, refiners are not only trying to sell excess fuel abroad, but also cutting their refinery capacity to meet the government's efficiency rules.
4) We can see in our ClipperData that Japanese fuel exports are coming under pressure, holding below year-ago levels for much of the last year, as other regional players (think: China) muscles them out of the market.
5) China car sales are hitting the brakes (tee hee), as the removal of a tax discount for smaller cars is quelling buying interest. The China Automobile Dealers Association has just warned that sales have fallen in the first two months of the year - for the first time since 2012 - while inventories are surging (hark, below).
Gasoline demand growth has been boosting total Chinese oil demand in recent years as car sales have ripped higher, while distillate demand has lagged as the pace of the manufacturing industry has slowed. Chinese oil demand is projected to grow ~300,000 bpd this year; slowing car sales could put this at risk.
6) Finally, my latest feature for the Texas Standard can be found here, where we discuss the current OPEC production cut deal, and how the Permian Basin could be throwing a wrench in the works.