Happy Friday 13th! This final day of the week is set to be a scream.
Jumping straight into the overnight economic data, and the final print for Japanese industrial production was not as scary as it could have been, coming in at 1.1 percent for September, slightly above consensus of 1.0 percent. Across to Europe, and preliminary Eurozone GDP for Q3 put the frighteners on things, showing growth of just 0.3 percent (QoQ), versus an expectation of 0.4 percent.
Onto the U.S., and after scant economic data flow this week, we are getting a late-week influx to buck the trend. Retail sales were disappointing, coming in shy of expectations across the board, while producer prices – a leading indicator of price inflation – continued further into deflationary territory.
Onto our dearly beloved commodities, and IEA has completed the trilogy of key monthly oil reports. It is very much in keeping with what we heard from OPEC on the inventory front, drawing attention to the ‘3 billion barrel cushion‘ of stockpiles across the world.
The agency remains the most bullish on demand versus OPEC and EIA this year, seeing demand growth of 1.8 million barrels per day. Next year it sees it slowing to 1.2 mn bpd (OPEC sees +1.25 mn bpd). But from a supply perspective, IEA highlights how the current supply glut has spread to distillates, as rising demand for gasoline from the U.S. and China has spurred on higher refining runs, causing ‘ballooned‘ distillate inventories. Related:Will U.S. Solar Suffer The Same Fate As Fracking?
The agency’s view on OPEC production diverged from the cartel’s for last month, seeing production holding up at 31.76 mn bpd. While it mirrored OPEC’s view that production from Iraq and Kuwait dropped (along with a rise in Libyan production), IEA said supply losses were also offset by rising Saudi and Nigerian production. IEA also sees non-OPEC supply losses next year, dropping 600,000 bpd.
(Click to enlarge)
After yesterday’s sizable crude stock build from the weekly U.S. inventory report, attention shifts to the surpassing of the record level of 490 million barrels, achieved earlier in the year. Related: Railroads Hit By Falling Oil And Coal Production
As we exit refinery maintenance season, we should be seeing crude demand picking up once more and inventory builds leveling off, likely dropping into the year-end (in a Gulf-Coast-ad-valorem-tax-kind-of-way). But as this week’s 4.2 million barrel build illustrates in the face of rising refining, the U.S. remains awash with crude. This is either due to ongoing strong production or ongoing strength in imports – or both.
We can see from our #ClipperData that waterborne imports remain resilient; while PADD3 (Gulf Coast) imports remained steady for October, PADD1 waterborne imports kicked higher by 44 percent as international grades were more attractive for East Coast refiners to bring in than Bakken crude via railcar. The West Coast (PADD5) also saw volumes rise last month, by 7.5 percent, due to notable increases from Ecuador, Iraq, and Saudi Arabia.
If we assume that imports from Canada have remained constant by pipeline since August (EIA’s last data point), then this puts current U.S. crude imports at ~7.8 mn bpd. No wonder we are nearing record inventory levels, imports are on the rise.
U.S. waterborne imports by PADD, 2015 (source: ClipperData, Datamyne)
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All the while, U.S. production seems to be holding up better than expected. As the chart below illustrates, it is holding its own, if Rystad Energy’s data is to be favored versus EIA. It would appear even higher U.S. inventories await. Related: LNG Glut Set To Worsen Considerably Over Next 3 Years
By Matt Smith
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