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WTI Jumps To $40 On Demand Recovery

WTI Jumps To $40 On Demand Recovery

The U.S. benchmark WTI Crude…

Citigroup: Oil Will Never Return To $100

Citigroup: Oil Will Never Return To $100

Citigroup analysts said on Thursday…

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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Strong Crude Inventory Draws Keep Markets On Edge

After trying to grab ahold of the fifty dollar handle, WTI has lost its grip and is sliding lower in the forty dollardom once more. Even though U.S. inventories look set to descend through August, global oversupply concerns are overshadowing this supportive influence. Hark, here are some things to consider in oil markets today.

In terms of U.S. oil inventories in August, it has been a mixed bag for movement in the last five years (build / build / draw / draw / draw). While record refinery runs and rising exports are helping to draw stocks this summer, flows from Saudi Arabia and Venezuela remain very much in focus on the import side of the equation. 

As Saudi Arabia cuts flows to the U.S., this supply drop is manifesting itself in lower deliveries to Port Arthur. Saudi Aramco's Motiva refinery at Port Arthur has imported 314,000 bpd through the first seven months of the year, just a smidge below year-ago levels.

While arrivals through the first quarter were really strong - as were total Saudi Arabian deliveries to the U.S. - imports over the last four months have averaged 157,000 bpd, considerably lower than the 216,000 bpd seen over the same period last year. Saudi barrels account for ~70 percent of waterborne imports into Port Arthur.

Related: Oil Rises, But Saudis Face Daunting Dilemma

As Saudi Arabia has cut deliveries to the U.S. in recent months, Motiva has received less barrels, as Saudi Aramco chooses to keep other customers well-supplied instead. Motiva is accordingly pulling in barrels from elsewhere, such as Colombia, Brazil - and interestingly, Iraq - to offset these losses:

(Click to enlarge)

Venezuela is facing a very different dilemma to Saudi when it comes to supply, as underinvestment in its oil industry is translating into both lower domestic production and exports. 

While it is being suggested that Venezuela's two Citgo refineries on the Gulf Coast (hark, Corpus Christi and Lake Charles) may begin turning to Canada for its crude supplies, we can see from our ClipperData that the two refineries haven't pulled in Canadian crude since at least 2012.

They have instead been pulling in mostly Latin American barrels (think: Brazil, Colombia, Ecuador) and West African barrels (Angola, Nigeria, Equatorial Guinea, Gabon) this year, while the overall share of Venezuelan crude continues to be marginalized.

After Citgo refineries accounted for 26 percent of Venezuelan flows to the U.S. last year, this number dipped to 14 percent in June as PdVSA has sent its crude elsewhere - as it seemingly tries to raise cash. 

(Click to enlarge)

As oversupply persists, the demand side of the picture remains on the back burner, despite upward revisions from both of last week's monthly reports from OPEC and the IEA. While the latest data out of China is concerning the market this week (disappointing industrial production and retail sales data, refinery runs at a ten-month low), the latest Indian demand numbers are looking robust.  Related: Tech Guru Unveils New Battery To Challenge Lithium-Ion

According to the Indian oil ministry's Petroleum Planning and Analysis Cell, Indian oil demand was up 1.1 percent year-on-year in July, driven by an 8.5 percent increase in diesel consumption, and an increase of 11.7 percent from gasoline. LPG demand was up 12.5 percent, while petcoke and naphtha both fell, down 10 and 27 percent, respectively.

Nonetheless, as the latest revisions to the IEA oil market report illustrate, firm demand is not going to be enough to spur on inventory draws in the coming quarters - after the IEA just found an additional 230 million barrels of storage which will need to be drawn down.   

(Click to enlarge)

By Matt Smith

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