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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Oil Prices Pull Higher As Refiners Soak Up Soaring Crude Imports

Oil tanker

In today's game of rock-paper-scissors from the weekly EIA inventory report, crude inputs were propelled higher (like a rock), blunting the impact of super-strong imports (the scissors). On paper, the crude draw is bullish, but a modest rally is being kept in check somewhat by solid builds to the products. Hark, here are five things to consider in oil markets today:

1) Even though crude imports jumped higher by over 1.1 million barrels per day last week, a climb into unchartered territory by refinery runs meant that crude inventories were drawn down by 3.6 million bbls. Refinery runs jumped to 17.3 million bpd, the highest level on record, as cheap and available crude - as opposed to strong demand - is driving on refining activity. Refinery runs are now a surreal 1.44 million bpd - or 9 percent - higher than year-ago levels:

(Click to enlarge)

2) Crude imports into the three coastal PADDs were exceptionally strong last week, led by stronger flows from the Middle East and Venezuela. Imports from Saudi Arabia and Iraq alone were over 2.8 million barrels per day, the highest weekly level on our records (since at least 2012).

This strength in waterborne arrivals was also boosted by Venezuelan barrels, which accounted for nearly 800,000 bpd of imports last week.

(Click to enlarge)

3) As the Dakota Access pipeline is set to come online mid-next month, it is being suggested that we will see more domestic crude flowing from the U.S. Gulf Coast up to the U.S. East Coast via Jones Act tankers.

The Trainer refinery is a great example of how these domestic waterborne flows have dried up of late. There used to be a regular shuttling of domestic crude from the Gulf Coast to Monroe's Trainer refinery (Monroe is a subsidiary of Delta Airlines), but there hasn't been a domestic loading since January, with Trainer pulling in increasing volumes of Nigerian crude instead:

(Click to enlarge)

4) The chart below shows how Venezuelan demand dropped 17 percent over two years from its peak in 2013 to 2015. According to Philip Verleger, demand may have fallen another 10-15 percent last year, as the Venezuelan economy continues on its downward spiral. A drop in demand is offsetting a drop in domestic production, meaning exports are holding up better than would otherwise be expected.

We agree with the theme of the article; it jibes with something we have highlighted here on a number of occasions: as Venezuela's economy spins out of control, it presents the biggest supply threat to the global market. Related: As Conflict Rages On, Russia Lands Oil Deals In Syria

(Click to enlarge)

5) Finally, stat of the day comes via the LNG market, with just over $700 billion invested in LNG export projects in the past decade. About half of these projects are in Australia. Total global LNG demand is forecast to rise by 40 percent to 364 million tons, up from 260 million tons last year.

While LNG as a marine fuel is only expected to account for ~2 percent of total demand by 2025, cruise companies are starting to order LNG-powered vessels. Carnival, the cruise company, has 107 vessels in its fleet, and has seven vessels on order to run on LNG. LNG-fueled ships are expected to more than double to 200 by 2020 - from just five in 2005 - meaning infrastructure is also going to expand, with bunkering to be built at ports, to support the shipping industry going forward.

(Click to enlarge)

By Matt Smith

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