Oil Prices Edge Lower As Imports Keep Inventories Buoyed

After a lesser draw than expected to crude inventories, oil is selling off on this third Wednesday in April. As strong imports from the Middle East this week should help to buoy inventories for next week's report, hark, here are five things to consider in oil markets today.

1) Much is being made of Saudi Arabia's February exports, which showed a drop to the lowest since mid-2015, according to JODI data. But we can see in our Clipperdata that this drop is superseded by a solid rebound in March exports. We see exports rebounded to over 7.2 million barrels per day, with flows bound for East Asia (think: Japan, South Korea, China) accounting for 45 percent of loadings.

This is the second-highest monthly volume heading to East Asia from Saudi Arabia on our records. The highest was in January. In the aftermath of the OPEC production cut, East Asia has been strongly favored for OPEC barrels. Total OPEC loadings bound for East Asia in March have clambered above the 10 million bpd level, the highest on our records, although April so far is looking considerably weaker as total OPEC export volumes drop.

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2) It is also interesting to note that Saudi Arabia oil inventories rose in February amid the export lull. We discussed earlier in the month how JODI data showed that oil inventories dropped to 262 million barrels in January, down from a peak of 329 million barrels in October 2015.

After dropping thirteen out of the previous fourteen months - and for seven months in a row - Saudi crude inventories for February rebounded by 2.74 million bpd. This appears due to less crude leaving the country, and more finding its way to be both refined and put into storage:

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3) As the Dakota Access Pipeline (DAPL) starts up, the largest refiner on the East Coast - Philadelphia Energy Solutions (PES) - is not expected to take any deliveries of Bakken crude by rail in June. Once DAPL starts up, it is more profitable for oil to be sent by pipe to the U.S. Gulf Coast than it is to send it by rail to the East Coast. Related: Russian Tanker Owner Holds PDVSA Oil Cargo Hostage Over Debts

As our ClipperData illustrate below, the marginalization of Bakken barrels to the East Coast has been underway for a good while. Waterborne imports bottomed out in early 2015 - at exactly the same time that Bakken shale crude production was peaking out.

As Bakken production has dropped off since, and as oil prices have remained low (making waterborne imports a more economically viable option than crude by rail), waterborne imports have risen ever since. While Canadian and Brazilian grades are consistently delivered to the refinery, West and North African grades have accounted for nearly 60 percent of imports since the start of last year.

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4) Today's key EIA inventory numbers have been driven in large part by big swings on the US Gulf Coast. While total US refinery runs rose by 241,000 bpd, an increase of 260,000 bpd was seen from Gulf Coast refiners.

This uptick in Gulf Coast refining activity, in combination with imports remaining somewhat in check, has meant oil inventories have drawn down on the Gulf Coast by 3 million barrels. Next week's report is set to be impacted by super-strong waterborne imports from the Middle East, but for now, the increase in refining activity is taking center-stage. Crude inputs are now a whopping 958,000 bpd above year-ago levels.

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5) Finally, the IMF has published its April 2017 World Economic Outlook. It projects world economic growth is going to be at 3.5 percent in 2017, rising to 3.6 percent in 2018. As we know all too well, all paths lead back to energy, hence downward revisions have been made to Latin American and Middle East nations due to the impact of lower oil prices and production cuts.

While the Russian economy is seen turning a corner as oil prices rebound, Saudi Arabia's economy is projected to grow at 1.3 percent in 2018, down from an estimate of 2.3 percent in January, due to austerity measures and production cuts.

By Matt Smith

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