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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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Crude Charges Lower On Oversupply Concerns

Gasoline is continuing its charge higher amid ongoing issues relating to the Colonial pipeline. Nonetheless, crude is charging lower into the weekend as oversupply fears weigh and dollar strength returns. Hark, here are six things to consider in oil markets today.

1) In response to last week's huge oil draw from weekly inventories, we have put together this free white paper explaining what happened, and how our ClipperData is able to predict such anomalies. Check it out!

2) Counter to expectations, crude output in the U.K. North Sea has not dropped off this year. In fact, projections from Wood MacKenzie show it should continue to rise going forward; they expect it to top 1 million barrels per day in 2016, and to continue to rise through 2018 before dropping again.

This is somewhat counter to EIA's assessment; it sees North Sea production rising ~100,000 bpd this year, before declining by 210,000 bpd next year. This year's increase is due to recent projects coming online, which were invested in way back when oil prices were considerably higher.

(Click to enlarge)

3) This time last week we discussed rising crude imports into the U.S. from OPEC. At this juncture - prompted by the above - we can see that flows from Northwest Europe have also increased. We highlighted yesterday how ClipperData's Abudi Zein had penned a piece on RBN Energy about how net imports into the U.S. are strong; the rise in Northwest European flows is one more indication of this.

As our ClipperData illustrate below, imports of Northwest European grades are up nearly 80 percent through August compared to year-ago levels. The majority (~80 percent) are light sweet crude (led by Ekofisk, Troll), with the remainder heavy sour, with nearly two-thirds of the volume heading to East Coast refiners, and the rest to the U.S, Gulf.

(Click to enlarge)

4) While the U.S. standard for sulfur content in diesel is 15 parts per million (ppm), the EU is even more stringent, at less than 10 ppm. Some countries in Africa, however, still allow sulfur content of more than 5,000 ppm. The chart below is from a BBC piece today summarizing this (hence sulphur not sulfur). Related: Goldman Sachs Crushes Hopes Of Oil Price Recovery

While African governments will likely try to lower sulfur limits in the coming years, some countries such as Kenya, Uganda, Rwanda, Burundi and Tanzania have already tightened their standards to 50 ppm. Substandard refineries, as well as the fear of higher costs for cleaner diesel, are expected to delay this effort. In the meantime, fuel that is too dirty for Europe is being sold into Africa.

(Click to enlarge)

5) The Netherlands is the EU's largest natural gas producer, but as production drops due to government limitations on extraction, it is set to further draw down reserves - which have already been drawn down nearly 80 percent.

Production has dropped by 38 percent in the last two years as earthquakes in Groningen have prompted the government to cap production volumes from the Groningen gas deposit - the largest gas deposit in the EU. Related: Why The Bankruptcy Wave In Oil & Gas Isn’t Over Yet

As the chart below illustrates, Netherlands gas reserves continue to head lower - something which will only persist as production drops off.

(Click to enlarge)

6) Finally, according to a study by CAT, a group that monitors government actions to restrict global warming, the last gasoline / diesel car will need to be sold by 2035 to meet G20 climate goals. It assumes that fossil fuel vehicles will be on the road until 2050 - a phase-out date earlier than that set by most car manufacturers.

By Matt Smith

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  • KR55 on September 16 2016 said:
    Actually not that big of a drop considering USD spiking up today. Wonder if shorts are starting to run out of dry powder again.

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