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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 Crash Below $50 On Oversupply Fears

Crude is heading lower again, rounding out a downbeat week, as the expectation of an OPEC production cut extension is more than outweighed by an ongoing lopsided market. As oversupply fears enter the fray once more, hark, here are five things to consider in oil markets today:  

1) OPEC crude exports so far this month are down compared to March, led by a drop from Saudi Arabia and Iran. Nonetheless, total global crude loadings continue to tick higher, holding above 50 million barrels per day.

As our ClipperData illustrate below, global loadings continue to grow - and strongly - on a year-over-year basis, as global producers have ratcheted up output, and more recently, on signs of crude potentially shifting out of onshore storage.

(Click to enlarge) 

2) While there has been considerable focus of late on the elevated nature of OECD inventories, there has also been the suggestion that crude is instead being drawn down from areas where there is less transparency and visibility, such as the Caribbean.

Six locations in the Carribbean export crude (not including Curacao, as it is a stepping stone for Venezuelan exports): Trinidad & Tobago, St. Lucia, St. Croix, Cayman Islands, the Bahamas and Aruba. Loadings from these six averaged 400,000 bpd last year. Year-to-date, this number is slightly lower, at 380,000 bpd - but this is due to a slow start to the year; March and April loadings are picking up. There has been one particularly interesting development of late.

Arclight Capital / Freepoint took over the Hovensa refinery complex in St. Croix in early 2016 after a period of inactivity, and is transforming it into a storage hub. We can see from our ClipperData that it started pulling in crude for storage in mid-last year, receiving regular deliveries each month of mostly heavier grades - such as Castilla Blend and Maya.  

Related: Don't Believe The Hype: Oil Markets Far From Recovery

Its appetite changed this year, pulling in lighter crude instead such as Ekofisk from the North Sea, and WTI in recent months. This makes sense, given that lighter grades are more readily available this year, as heavier and sour crude gets bid up amid the OPEC production cut deal. 

In terms of exports from St. Croix, we saw a loading bound for Portugal in November, then a three-month absence. Since the start of March, however, we have seen three loadings. Combine this with a tick higher in loadings from Aruba and St Lucia, and a trend may be potentially emerging. 

(Click to enlarge)

3) Since the start of the year, non-Canadian companies have sold more than $20 billion of Canadian oil sands assets, as companies switch their focus to short-cycle oil projects instead, such as U.S. shale.

This drying up of international investment has been offset by Canadian companies such as Cenovus Energy, Suncor and Canadian Natural Resources stepping up instead, with the expectation that their local knowledge, relationships and sharing of proprietary technologies will make the oil sands a much more viable option going forward. 

Oil sands accounted for 2.4 million barrels per day of production in 2015 (hark, below), accounting for nearly two-thirds of Canadian output.

(Click to enlarge) 

According to OPEC, total Canadian production rose a further 80,000 bpd last year to average 4.5mn bpd.   Ongoing production growth is expected this year, with an increase of 210,000 bpd to average 4.71mn bpd - driven by production ramp ups for both bitumen and synthetic oil projects. 

(Click to enlarge)

4) Yesterday we looked at drilled but uncompleted wells (DUCs, quack) in the Permian basin. The chart below adds a bit more color, showing both drilled and completed wells. As a reader rightly commented on yesterday's blog, this rise in DUCs is likely due to operators ensuring they maintain their land leases.

Related: Reeling From Low Oil Prices, Saudis Look To Freeze Megaprojects

The rise in the drilled wells is likely a response to improving confidence in the oil sector, while the rising DUCs point to higher production ahead when market conditions become more favorable (think: services costs and/or oil prices).  

(Click to enlarge)

The graphic below is also from the Dallas Fed's latest energy indicators, showing the change in the Texas rig count by county from May 2016 to March 2017. The Permian Basin, not surprisingly, has been the biggest beneficiary, accounting for the three counties with the biggest rig count increases: Reeves (+31), Martin (+15) and Howard (+14). 

(Click to enlarge) 

5) Finally, stat of the day comes from this WSJ article, which highlights that Chinese refining capacity has tripled this century, now accounting for 15 percent of the global total (at the end of 2015). This is ~20 percent higher than Chinese domestic demand. CNPC, China's largest oil company, project that refining capacity will increase by 5 percent in 2017, leading to higher product exports going forward.

Countering this view is the implementation of a consumption tax in China on mixed aromatics, light cycle oil and bitumen blend, which could ultimately hit exports of oil products. 

By Matt Smith

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