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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 Price Rally Comes Undone As U.S. Crude Inventories Build

One hundred and fifty-nine years after the first shipment of perforated postage stamps was received by the U.S. Government, and the crude complex is posting a loss once more.

After the distraction in recent days from rhetoric out of Ceraweek in Houston, focus today shifts to weekly inventories, and current oversupply in the U.S. petroleum complex. Last night’s API report presented a strong build to crude stocks, leading to the same expectation from today’s EIA report.

This makes logical sense to us from a ClipperData perspective, as the buildup of vessels offshore in the U.S. Gulf Coast recently means we have seen super-sized imports in the last week. Refinery utilization also likely dropped, ushering crude demand lower still.

While on the topic of the Gulf of Mexico, we discussed a couple of weeks ago how Mexican oil production is dropping. OPEC in its latest monthly report expects Mexican oil production to drop by 130,000 barrels per day to 2.47 million bpd, hot on the heels of a 200,000 bpd drop in 2015. The chart below from Bloomberg pegs Mexican production at an even lesser rate: Related: This Is What Will Cause A Lasting Oil Price Rally

In terms of our ClipperData, crude exports have held relatively steady for the last couple of years around 1.1 million bpd. While volumes have been fairly static, the destination for these flows has changed quite considerably. This has mostly been to the benefit of Asia and Europe, while U.S. loadings have dropped from 73 percent of total exports in 2013 to 61 percent last year. Related: Who Will Be Left Standing At The End Of The Oil War

The chart below illustrates this gradual shift away from the U.S. Exports to Japan and South Korea were non-existent in 2013, but now account for over 6 percent of exports. Exports to Italy, France and the Netherlands now also account for 6 percent of exports, having been negligible back in 2013. Spain remains in second spot in terms of volume, being the destination for 13 percent of loadings last year.

(Click to enlarge)

Finally, this chart of Saudi crude production on a monthly basis over the last fourteen years is an interesting snapshot to illustrate how the Kingdom ramps up production each summer to meet increased demand from the power generation sector. Related: ExxonMobil’s New Reserves Fall Short For First Time In 22 Years

According to JODI data, Saudi Arabia boosts output in the summer by 360,000 bpd from January levels to meet these heightened needs. Hence, if we were to see a coordinated production ‘freeze’ by Saudi – as unlikely as it seems – it would need to reduce exports, or draw down inventories, or both, to offset this. It still feels like an improbable scenario at this juncture.

(Click to enlarge)

By Matt Smith

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