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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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Rising U.S. Oil Imports See Oil Prices Fall

Oil Field

Oil prices are little changed, as a build to crude inventories in today's weekly inventory report has been offset by solid draws to the products. As traders start to shift focus from OPEC to Santa, hark (the herald angels sing), here are five things to consider in oil markets today:

1) We wholeheartedly disagree with an article today which suggests that we will have to wait until February to assess whether OPEC / NOPEC members are complying with production cuts.

The suggestion that we won't have 'a full, timely supply picture' is understandable in relation to JODI data, which is released on a 2-month lag, but given the almost real-time and comprehensive nature of our export data, production cuts should show up promptly - something producers are only too aware of.

That said, there is a valid argument made by the good folks at Barclays that producers may instead ramp up refinery runs to export products where possible.

Saudi Arabia has been focused in recent years on becoming a leading player in exporting refined products. It is completing the process of expanding its domestic refining capacity to over 3 million barrels per day with the construction of the Yanbu and Jazan refineries, while globally it has an additional 2mn bpd of refining capacity via joint ventures.

Related: Musk’s Space X: Down But Not Out

Looking ahead, Saudi is set to boost global refining capacity to as much as 10mn bpd by the end of next decade, as well as tripling its production of petrochemicals, integrating the two as it expands its downstream business.

As our ClipperData illustrate below, Saudi Arabia export loadings of gasoline and middle distillates have averaged over 1mn bpd this year through November, despite maintenance crimping exports last month:

(Click to enlarge)

2) While ramping up its refining capacity, Saudi Arabia still burns more oil than any other country to generate electricity, as the chart below illustrates. The kingdom is planning to add another 700 megawatts from wind and solar power generation in 2018, with another 8.8 gigawatts of renewable energy targeted by 2023.

In the meantime, it will continue to direct burn as much as 900,000 bpd in the height of summer to meet air conditioning needs.

(Click to enlarge)

3) Today's inventory report yielded a solid build to crude inventories, as waterborne imports rose to all three coastal regions, while strong flows from Canada meant the biggest increase to regional inventories was seen in the Midwest.

In relation to increased imports into PADD3, we saw a spike in ship-to-ship transfers last week after poor weather in the week prior had limited lightering. As for the products, inventories were drawn down for both gasoline and distillates - despite higher refinery runs - with implied demand for both much stronger than the week prior.

Refinery runs are up to 16.7mn bpd, up 184,000 bpd on the week prior, clambering back above last year's level - which in turn is the five-year high:

(Click to enlarge)

4) To quite the fanfare, Libyan pipelines from Sharara and El Feel fields have been reopened, meaning that production can be restarted - for the first time since November 2014 at Sharara, and April 2015 for El Feel.

Related: Oil Holds Steady On Holiday Trading

The reopening of the fields is said to potentially boost Libyan oil production by 175,000 bpd within a month, rising up to 270,000 bpd within three months. Sharara has output capacity of ~330,000 bpd, while El-Feel can produce ~90,000 bpd.

5) Since Doug Lawler took over Chesapeake Energy in 2013, its capital expenditure has been reduced by 90 percent, its workforce by 70 percent, and its land portfolio by over half to 7 million acres (see graphic below).

The CEO taking over from Aubrey McClendon has had to deal with Chesapeake's debt of ~$21 billion, and is looking to reduce it to $6 billion. The company is continuing to focus on efficiencies, drilling wells in the Haynesville shale that go 2 miles deep, then another 2 miles horizontally. These wells need 51 million pounds of sand to be fracked.

By Matt Smith

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