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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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Soaring U.S. Output Keeps Crude Subdued

Oil is on the defensive again, retracing from resistance in recent days amid bearish U.S.-centric data of rampant production increases.

Despite the Good Friday holiday, we get the EIA inventory report at the usual time tomorrow, but for now, hark, here are six things to consider in oil markets today:

1) As oil prices based on the Dubai-Oman benchmark remain more expensive than U.S.-based WTI, Latin American crude continues to be pulled towards Asia. This is displacing other flows, translating into lower U.S. imports. We are over halfway through the month, and imports from Central and South America are at the slowest monthly pace on our records.

Imports this month continue to drop from Brazil and Colombia, while Ecuadorian grades, Napo and Oriente, are completely absent. Only Venezuelan grades are showing strength versus the month prior:

(Click to enlarge)

2) The latest monthly IEA report has been interpreted as somewhat downbeat, despite the prognostication that 'the market is already very close to balance'. This is because demand growth has been adjusted lower by 200,000 bpd in Q1, and by 100,000 bpd for 2017 on the whole, to +1.3mn bpd.

While Asian fuel demand has been the backbone of oil demand growth for many a year, signs of stuttering from various parts of the region - including South Korea, Japan and India - means demand growth may not be as robust as we have come to expect.

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

The second piece of the puzzle is inventories. The agency reported that OECD oil and product stocks fell by a mere 8.1 million barrels in February after January's rise. This leaves them at 3.055 billion barrels, some 330 million barrels above the 5-year average (aka, the normalized level that is the goal of the OPEC production cuts).

Including the IEA's estimate for March, it projects that inventories still climbed on the aggregate through the first quarter of the year, up by 38.5 million barrels:

(Click to enlarge)

3) Yesterday's feature on NPR's Texas Standard addressed the issue of fracking sand, and how it is in a bull market. The interview can be found here, while here are some of the sand stats quoted:

--Fracking sand is used as a proppant in hydraulic fracturing, to hold open tiny fissures for oil and gas to pass through

--A total of 54 million tons of fracking sand were used in the U.S. in 2014. Demand is projected to rise to 80 million tons this year, and to 120 million tons in 2018

--Typically the fracking sector has been dominated by silica sand from Wisconsin and Minnesota, as well as from Illinois, Iowa and Indiana. But as more fracking sand is needed in Texas, more mines are starting up

--Nearly 20 times more sand is used per well compared to the peak of the last energy boom

--The largest wells now consume up to 25,000 tons, compared to from 1,500 tons in 2014

--It can take up to 1,000 truckloads to haul enough sand to frack a single large well

4) While so much focus remains on the oil boom in the Permian basin, it is important to note that according to the latest EIA drilling productivity report, natural gas production in the basin is set to reach a new milestone, clambering over 8 Bcf/d. This has prompted Blackstone Group LP to takeover EagleClaw Midstream Ventures for $2 billion.

As crude production rises in the basin, more 'associated gas' is produced as a biproduct. With demand for natural gas set to continue on its upward trajectory due to a number of factors - power generation, industrial demand, pipeline and LNG exports - the future is looking bright for the Permian, for both oil and gas.

(Click to enlarge)

Related: Could An OPEC Extension Normalize Inventories?

5) While on the topic of the Permian, the chart below is part of a study of 37 U.S. E&P companies by Bloomberg, showing that 32 of the 37 companies have hedged part of their production for 2017. As for Permian-focused companies, they have hedged 64 percent of their expected oil production for this year...and at a weighted average price of $49.43/bbl to boot. As efficiencies improve in the basin, a hedged price of around $50/bbl appears an attractive option. Only 21 of 37 have hedged anticipated production for 2018.

(Click to enlarge)

6) Finally, this piece out on RBN Energy references ClipperData, and how we are counting cargoes and using port agents to identify the quantity, type and quality of crude that is being imported into the U.S. on an almost real-time basis.

By Matt Smith

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Leave a comment
  • george wang on April 18 2017 said:
    US WTI does not do crap for the rest of the world unless we can export.
    It all speculation by the few.lol.
    most of our major refineries can't even use all WTI , they have to mix the crudes in order to run at high capacity rate. otherwise, WTI would get the higher price than Brent.
    Our pipelines system was designed for importing not export. Now we need to reverse the flow like LNG.
    That is how our Fed Dept of Energy works and poor planning. We need a real energy policy not politician policy.lol. Hope Perry the crook can do better than this.

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