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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 Is Ticking Lower As Record High Crude, Gasoline Inventories Weigh

Oil is ticking lower today, under the weight of record crude and gasoline inventories, but with OPEC production cuts providing a supportive backdrop (...and peeking around the curtain). As Friday afternoon approaches, and the prospect of conflicting data from a rising rig count and bullishly-positioned CFTC data, hark, here are five things to consider in oil and energy today.

1) A month ago we discussed how ADNOC (Abu Dhabi National Oil Company) had secured the renewal of a contract to store 6.3 million bbls at Okinawa in Japan. ADNOC has a similar arrangement with South Korea, with 6 million barrels of its light sour Murban grade stored at Yeosu.

It is looking to draw down its Murban crude reserves from the Yeosu storage tanks, as it has more crude available in the coming months due to an outage at its Ruwais refinery, and the lapsing of some short-term supply deals. It essentially needs to make some space to store this extra crude.

Our ClipperData show that South Korea was the fourth largest destination of Murban last year. Not surprisingly, Japan was the leading destination (given its storage tanks there), followed by India and Thailand.

The vast majority of Murban barrels to South Korea go to Yeosu. Light sour Murban is the leading export grade from UAE, with just under 1 million barrels per day loaded for export last year:

(Click to enlarge)

2) The below chart highlights the swelling U.S. crude glut of recent years, with nearly 190 million barrels making its way into U.S. storage tanks. Nearly 40 million barrels of this rise has come in recent weeks. Related: OPEC Ready To Cut Deeper

Going back to 1980, 10 million barrels typically get added to inventories through January and February. This leads to the question: why are inventories up so much this year? Some of the blame can be applied to imports; as OPEC producers ramped up export loadings late last year ahead of a production cut, the U.S. has been a key destination for these flows.

According to our ClipperData, total waterborne imports in January were 5.14mn bpd, up nearly 550,000 bpd versus year-ago levels, and up nearly 500,000 bpd versus last month. This influx hasn't been inspired by lower inventories; they are over 45 million barrels higher than this time last year.

At the same time, U.S. production is also adding to the glut by building up a head of steam, egged on by prices in fifty-dollardom. Even though the U.S. is set to feel the brunt of the OPEC production cuts - something we see in our export loadings for both January and February, this last week has marked the first week so far this year that refinery runs have dropped below year-ago levels. Less demand for crude amid seasonal maintenance and a stymied crack spread means crude builds will likely be ongoing.

(Click to enlarge)

3) We lauded Angola last week for reflecting full compliance in their January exports. It now comes to light that its export loading plan for April is 1.691mn bpd, comprising of 53 cargoes. This is some 180,000 bpd above the production level it commited to maintain, to keep in compliance with OPEC cuts. Hum dee dum.

4) Oman, the largest Middle East crude exporter who is not a member of OPEC, is looking into the possibility of receiving early payments for its crude, rather than having to issue debt to raise funds. Related: Total Going On The Offensive

It is running a large budget deficit, and is considering asking to get paid for its oil as much as two years prior to delivery, in exchange for price discounts. Oman currently sends over 70 percent of its oil to China, so that seems likely where it is heading with its cap in its hand; crude arrived at eighteen different Sinopec terminals and refineries last year - looks like they might get hit up first:

(Click to enlarge)

5) Finally, according to Greentech Media, solar power installations in the U.S. doubled last year, with 40 percent of all power generation projects coming from the renewable source. It was also the first time since 2011 that the growth of utility-scale projects surpassed residential solar. There are now 1.3 million solar installations across the U.S., with a capacity of 40GW, which is enough to power 6,560,000 homes.

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Hopping from one geography to another, the World Bank is working on making renewable energy more accessible in Sub-Saharan Africa. Less than one in five Africans had access to the power grid in 2012 - equating to 500 million people.

To counter this trend, the World Bank is calling on governments to integrate solar technologies into their electrification strategies. This push for a 'solar revolution' not only involves trying to get 1 GW of photovoltaic electricity connected to the grid, but also off-grid solar energy to 56 million new users.

By Matt Smith

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