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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 Hits Three Months High Despite Strong Dollar

Roughnecks at work

And we welcome the distraction of tomorrow's inventory report with open arms, as well as Nonfarm Friday after that, as it takes some focus away from the ongoing OPEC shenanigans. As prices maintain a footing despite a super-strong dollar, hark, here are five things to consider in oil markets.

1) Iranian export loadings continue to hold close to pre-sanction levels of 2.6 million barrels per day, buoyed by a rise in export loadings of South Pars condensate. Production of the condensate is currently at around 550,000 bpd, and as our ClipperData illustrate below, the vast majority of this is getting exported - all loaded at Asaluyeh.

Projections suggest exports could keep on rising, with barrels being pulled from floating storage to meet demand. Our latest floating storage report pegs Iranian barrels at just over 32 million barrels. The leading destination of South Pars condensate so far this year is South Korea, followed by UAE, Japan and China.

2) Even though Hurricane Matthew is not set to enter the Gulf of Mexico, it will have all manner of other ramifications on crude flows despite the lack of threat to U.S. oil and gas infrastructure. While the storm is set to hinder imports into the Gulf coast (and gasoline flows to the East coast later in the week, most likely), it is also causing the shutting in of 33 million bbls of storage in the Bahamas.

There are two key storage terminals in the Bahamas: Buckeye's Freeport terminal, which has storage capacity of 26.2 million bbls, and Statoil's South Riding terminal, which has 6.7 million bbls of capacity. The two send oil to nine different countries, but with the U.S. being the key destination.

As our ClipperData illustrate below, crude loadings from the Bahamas to the U.S. have averaged 3.74 million barrels per month so far this year, with most coming from the Buckeye terminal. The majority of the crude in storage is from Latin America, which makes logical sense, given its proximity. Related: Shell, Chevron Drop Off Platts Top 10 Energy Firm List

Colombian medium sour Vasconia accounts for just over half the export volumes from the Bahamas to the U.S. this year, with Venezuela's heavy sour Merey in second place, accounting for ~15 percent of exports.

3) I feel like I should almost be apologetic for including the chart below, because it is frankly a wee bit depressing. It illustrates how global growth is now approaching stall-speed at ~3 percent, the slowest pace in six years.

IMF head honcho, Christine Lagarde, labels the global economy as 'weak and fragile'; this coincides with the great (ahem) British pound reaching a 31-year low today amid concerns about the economic ramifications of Brexit. As the globe appears to be shifting towards being more isolationist, the fear of increasing trade barriers and less integration poses a threat to global growth going forward.

4) The chart below shows the spread for WTI crude prices for the prompt month versus 12 months out. Just as near-term weakness has caused the spread to blow out in the last year and a half or so (think: Mar '15, Aug '15, Jan '16), it has been near-term strength which has driven the narrowing of the spread.

Hence as we reach a 3-month high for WTI, the 1-12mth spread is at the narrowest since late August, with the longer end of the curve kept in check, as U.S. producers take the opportunity to hedge 2017 production at over $50/bbl. Related: Oil Rig Builders Tap Into Offshore Wind Market

Pioneer Natural Resources, one of the most active U.S. producers for hedging in recent years, was 55 percent hedged for 2017 in July. I bet they are more than that now.

5) Finally, ClipperData's Kanan Mehra is the author of today's rather splendid blog on RBN Energy, highlighting how the flexibility of waterborne supply helped to mitigate the impact of the Colonial pipeline outage. You can read the whole piece here.

By Matt Smith

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