• 2 days Watch for biofuels policy changes ...
  • 1 day EPA's Pruitt cites Bible to justify administration policies
  • 2 days Syria's Ghouta - Is there Threat Of Genocide? The World Is Silent.
  • 2 days Norway - World's Most Democratic Country! Where is the U.S. on the list?
  • 22 hours Majority unlikely to use self-driving cars
  • 2 days Saudi Arabia's Building a $500 billion Mega-City and Will Run 100% on Renewable
  • 1 day US shale production dull until someone starts talking shareholder payback
  • 3 days Elon Musk Steps Down From OpenAI Board to Dodge “Potential Future Conflict”
  • 1 day Perovskite Co.'s will they live to the promise?
  • 2 days First Oklahoma, Now Kansas Fracking Tied to Earthquakes
  • 2 days VW Looks At Apple For Electric-Car Design Guidance
  • 2 days Ideas on demand
  • 2 days DNA Robots Target Cancer
  • 2 days HAPPY RIG COUNT DAY!!
  • 3 days US admin to kill Energy Star program
  • 2 days Plastic bans to dent oil demand growth-BP
Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

More Info

Trending Discussions

Oil Prices Creeping Towards $40 Ahead Of Inventories Report

Refining Employees

Crude prices are moving lower once again today, as another weekly inventory report comes into focus, with the prospect of rising product inventories. Hark, here are seven things to consider in crude markets today:

1) Yesterday we looked at how ongoing sabotage in Nigeria should likely keep a lid on crude exports. While Nigerian exports in large part head to India and Europe (think Netherlands, Spain and France), it also sends crude into the U.S., and predominantly to the East Coast.

The chart below shows West African crude imports to the U.S. reached their highest level since August 2013 in May as they compete with domestic flows, before coming off again in June. Our ClipperData show Nigerian exports to the U.S. lead the charge, averaging 200,000 bpd through the first half of the year.

(Click to enlarge)

2) The theme of a product glut continues to send shivers through the crude complex, and the chart below does little to allay these fears. It shows how crude demand from refineries has consistently been trending below refined product demand this year for the first time since 2013.

After producing too much gasoline in recent months, refineries look set to dial back on runs amid oversupply and shrinking crack spreads, reducing crude demand and putting downward pressure on prices.

(Click to enlarge)

3) The weakness in the gasoline market is typified rather nicely by the chart below, which shows how much less the current Rbob crack spread is compared to year-ago levels. While cracks back in July 2015 were close to $30/bbl, current cracks are half that:

(Click to enlarge)

4) As U.S. pipeline infrastructure is built out, only 430,000 bpd of crude-by-rail was transported in April, down from a peak of 1.15 million bpd in October 2014. While some of this loss is attributable to U.S. production dropping off, pipelines to key shale plays such as Bakken in North Dakota have helped to siphon off demand; pipeline capacity in the region has more than doubled since 2010.

With WTI considerably lower than global benchmarks in recent years, high crude-by-rail costs could be absorbed; eighty-nine terminals in the U.S. were built or expanded to take crude-by-rail betwixt 2009 and 2015. With the lifting of the U.S. export ban, however, crude benchmarks are more closely aligned, while crude-by-rail is having to compete with foreign tankers. Hence, looking ahead, it is expected that crude-by-rail will likely continue to shrink if anything. Related: Bizarre Lawsuit Could Derail Elon Musk’s Hyperloop

5) In contrast to U.S. flows, crude-by-rail in Canada is on the rise. Crude exports by rail rose by 23 percent year-on-year in April, the biggest jump since September 2014; with pipelines full, crude flows have sought an alternative route.

Rail transport rose to 109,000 bpd in April, and estimates suggest it could rise to 450,000 bpd by 2018 as Canadian production rises. Existing pipeline capacity is full at 4 million bpd, with no new pipelines planned until at least 2019. Each additional barrel exported is now likely to leave by rail.

This is a cool nugget of info: transportation costs of shifting crude-by-rail from Canada to the U.S. Gulf is $14/bbl, while costs by pipe are $7-$9/bbl.

(Click to enlarge)

6) The tumble in crude prices since mid-2014 has caused upstream profits for oil majors to evaporate (only Exxon is still showing profits, see below). This has left downstream activities to pick up the slack, which they have graciously done throughout last year. Related: Erdogan’s Power Game: Turkey On Collision Course With NATO

However, as a product glut swells and profit margins narrow, downstream profits should dwindle. This is now a vicious circle, as lower demand for crude should put downward pressure on prices once more, which will in turn hurt upstream revenues.

(Click to enlarge)

7) Finally, there is some interesting price action going on in the Russian Ruble, breaking the typical trend of tracking the movement in crude prices.

Russia is the world’s largest energy exporter, and typically sees its currency weaken in tandem with crude prices, but as global investors hunt for yield – in a world littered with negative interest rates – the ruble and its relatively higher yield is attracting significant inflows.

While a stronger ruble is good for investors, it means that the price of oil is reduced in local currency terms, crimping government revenues.

(Click to enlarge)

By Matt Smith

More Top Reads From Oilprice.com:

 




Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News