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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 Prices Under Pressure From Record Breaking Inventories

Offshore rig

As U.S. crude inventories jump to a further record high, prices are chugging lower once again. A backdrop of strong economic data is also helping to sweep crude lower, via the broom of a stronger dollar. As focus shifts back onto weaker U.S. fundamentals, hark, here are five things to consider in oil markets today.

1) In the last few blogs, we've been discussing some of the 'problem' grades in Nigeria - such as Qua Iboe and Forcados - which have been stymieing both production and exports. One grade where we have seen strength from is medium sweet Bonga. That is, until now.

Shell has just announced that it has halted production at its Bonga field in Nigeria to undertake maintenance, which is expected to last at least a month (production is expected to return in April at some point). According to our ClipperData, Bonga export loadings averaged 155,000 barrels per day in 2015, before rising over 20 percent in 2016 to 187,000 bpd. After November's volume reached the highest on our records, Bonga loadings look set to tank as we skip through spring.

That said, a VLCC carrying ~1.9mn bbls of Bonga was loaded at Shell's Bonga FPSO on March 5, heading to the Lome Lightering Zone. This is likely the last loading before maintenance kicks in.

(Click to enlarge)

2) As U.S. crude imports rose last year, we saw some more unusual grades arriving on U.S. shores. Import volumes from the North Sea rose by nearly a third, as a variety of different grades arrived in every month except May last year. The majority of this crude has made its way to the East Coast, while eight cargoes of North Sea heavy sour crude (think: Captain, Grane and Harding) arrived in the U.S. Gulf.

So far this year, our ClipperData show that Brent Blend, Ekofisk and Oseberg has discharged on the East Coast, while a delivery of both heavy sweet Clair and heavy sour Captain has arrived on the U.S. Gulf Coast.

(Click to enlarge)

3) Today's weekly EIA inventory report runs the gamut in terms of extremes, with a huge 8.2 million barrel build to crude stocks tilted bearish, large draws to the products bullish. The crude build was bolstered by rebounding imports, with a huge 4.6mn bbl build on the West Coast. Related: U.S. Shale Production Growing At An Unprecedented Pace

As for the draws to both gasoline and distillates, lower refinery runs were exacerbated by higher implied demand. While total gasoline and distillate inventories sit at their respective five-year highs, the East Coast remains flush, while Gulf Coast exports drain PADD3 inventories instead.

(Click to enlarge)

4) The Russian economy has apparently exited from its longest recession in two decades, in part aided by a rebound in crude prices. Oil wasn't entirely responsible for the turnaround, however.

While oil and gas accounted for 40 percent of Russian government revenues last year, growth from other industries is helping to bolster government coffers (hark, below). A broader economic recovery could be seen this year, should inflation continue to tick lower and domestic demand higher.

(Click to enlarge)

5) Finally, we finish where we started: with Nigeria. The West African nation is looking to increase renewables in its energy mix to 23 percent by 2025, up from 13 percent in 2015. As the chart below illustrates, fossil fuels account for the majority of Nigeria's generation mix, while renewables have shown little growth over the last decade. This could change, however, as the government is set to reach a decision this month on allocating $30 million for solar power installations, including as much as 1,200 MW of off-grid solar.

By Matt Smith

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  • Citizen Sane on March 08 2017 said:
    OPEC has been lying about their actual compliance. This has been supported by an inept media who, along with many speculators, have been pushing the story of why the price has to eventually go up while ignoring the continued growth of the actual world stockpiles. The number of ships parked and loaded should also be a hint. Forget investigating Russian hacking and Democrat wire tapping. The real investigation should be about who was behind all the long positions on crude and the false support of oil price in anticipation of the Saudi IPO which probably won't happen now. This whole thing stinks to high heaven.
  • Concerned citizen on March 20 2017 said:
    I 100% agree with the previous comment. The oil market is artificially supported by BS news. WS is clearly supporting the price increases to serve whatever their secret agenda is. Today there is more oil sitting in reserves (~530m barrels) than last year when per barrel price was $25. Today we have higher active oil rigs than last year but the oil prices are double from last year ($52/pb).

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