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Oil Markets Will Only Get Tighter

Rig

Friday June 22, 2018

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

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Key Takeaways

- Because the EIA changed the way it displays U.S. weekly production figures, rounding off to the nearest 100,000 bpd, it is now difficult to decipher weekly changes. The weekly figures appear unchanged from the week before.
- Crude stocks fell sharply, a bullish result, although that was offset a bit by the increase in gasoline inventories.
- Gasoline demand appears to have plummeted but it is more likely the result of a more accurate picture of demand after an outlandishly high figure from last week.

1. U.S. exports of petroleum products to Venezuela jumps

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- The decline of Venezuela’s oil sector has led to an increasing reliance on imported petroleum products from the United States.
- Venezuela’s decrepit refineries has resulted in the declining availability of finished gasoline, distillates and other products.
- Over the last few years, Venezuela’s imports of U.S. “unfinished oils” has spiked, which is used to blend with Venezuela’s heavy oil.
- The problem for Venezuela is that more recently, it has lost control of some of its Caribbean refining and processing assets, which means it is having trouble blending its heavy oil altogether. It also is lacking cash to reliably import diluent.
- The result is oil production and exports in a freefall.

2. Capital discipline taking hold

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- The pressure from shareholders for capital discipline for the shale industry appears to be working.
- Barclays says that the plowback ratio (capex as a percentage of cash flow from operations) for 32 large and small-cap shale companies has converged down to 100 percent, after ranging between 120 and 140 percent over the last few years.
- In fact, the first quarter of 2018 saw a sharp correction downwards, evidence that the shale industry entered 2018 with a focus on capital discipline.
- That figure did not edge up, at least in the first quarter, despite the significant increase in oil prices.
- “Even the Permian-focused operators announced…




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