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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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Did Oil Inventories Just Peak?

Brazil Oil

After a bullish-tilted weekly EIA report, crude is holding onto gains - and once again bumping its head on the top of its trading range. As OPEC cuts and rising shale continue to do battle, hark, here are five things to consider in oil markets today.

1) With OPEC production cuts kicking in, Asian buyers have been busy in recent months pulling in crude from further afield. Although Latin American arrivals so far this month have been weak, at their lowest pace since last April, we are seeing a pillar of strength in Brazil.

According to our ClipperData, Brazilian crude exports into Asia rose nearly 20 percent last year versus 2015. So far this year, Asian arrivals are up another 20 percent year to date (to yesterday), with the last three months averaging 526,000 bpd. The majority of this crude makes its way to China, but in the last couple of months, we have seen higher volumes into India.

(Click to enlarge)

2) Arrivals of all crude grades into Asia this month are stronger than a combination of your three favorite superheroes (mine are Batman, Spiderman and The Flash). They are up over 1 million barrels per day versus last month, as well as versus February last year. Related: Why A Weaker Dollar Won’t Boost Oil Prices

This strength has not surprisingly come from the Arab Gulf, amid a final push of exports ahead of OPEC production cuts (hark, over 15mn bpd). They have been joined by West Africa, with Angolan deliveries at the highest on our records. Even North Africa has got in on the act, with rising Libyan production increasingly heading to destinations other than Europe:

(Click to enlarge)

3) We discussed last month how Brazilian oil production had not been affected by the price dip of the last two and a half years, because its offshore projects take a much longer time to come to fruition. Statoil, Shell and Total all paid billions since 2013 to gain access to Brazil's pre-salt offshore fields, and now this investment looks to have paid off.

Brazil's National Petroleum Agency (ANP), expects production to peak at nearly 4.5 million bpd in 2025, with more than half of that coming from pre-salt formations. As the chart below illustrates, nearly 1.3mn bpd is already coming from the region, with the Lula deposit now the largest producing field at 711,000 bpd. This higher production is translating into higher exports, which should breach 1mn bpd in the coming years.

Related: Has South Africa Just Pushed The Restart Button For Mining?

4) Stat of the day comes via a hybrid of Exxon Mobil and Twitter. Exxon Mobil has cut its proved reserves by the most since at least 1999 - some 19 percent - in large part due to writing off its 3.5-billion-barrel Kearl oil-sands project in Canada. The following tweet (h/t @cs_energyintel) succinctly sums this up: 'Reserves fell by nearly 4.8 billion boe btwn YE2015 & YE 2016 — that’s the equivalent of losing an Anadarko, Marathon + Hess'. Yikes.

5) Finally, this week's EIA inventory report has bucked the recent trend, with all three headline numbers - for crude, gasoline and distillates - all tilting bullish. Another solid drop in refinery runs have combined with a rebound in gasoline throughput to drag gasoline inventories away from last week's all-time record of 259mn bbls. If economic cuts continue from refiners, we should see stocks following their seasonal trend: lower.

(Click to enlarge)

By Matt Smith for Oilprice.com

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