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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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This Crude Oil Benchmark Just Rallied To A Three-Year High

Oil

Oman is the largest oil producer in the Middle East that is not a member of OPEC. It is also part of the OPEC / NOPEC production cut deal, committing to a 45,000 barrel-per-day cut from its output level of just over one million barrels per day. This equates to an export cut of about 36,000 bpd, according to our calculations.

The price of the Omani crude benchmark has just rallied to over a three-year high, seemingly driven higher by strong demand from Asia. But the rise also appears due to lower Omani supply, with our ClipperData showing crude exports from the country closing out September at the lowest monthly level since December 2014.    

China is the leading destination for Omani crude, accounting for 70 percent of its deliveries this year, with Asia accounting for a whopping 96 percent of total barrels. In fact, the only destinations outside of Asia this year have been the UAE, and the US. Andeavor's Wilmington refinery received 637,000 bbls of Omani medium sour crude earlier this month - the first delivery to the U.S. since last November.

(Click to enlarge)

We discussed yesterday Kirkuk crude exports from the Kurdish region of Iraq, amid mounting fears of a supply disruption to the Kirkuk-Ceyhan pipeline. This is stoking immediate supply concerns, while Chinese demand also appears to be boosting the need for Omani crude, as loadings of Angolan crude in November are set to drop to a thirteen-month low. Angola is in a similar situation to Oman, in that China is overwhelmingly the leading destination for its crude:

(Click to enlarge)

Omani crude exports are likely to come under further downward pressure in the coming months, as the expansion of the Sohar refinery is set to be completed, with refining capacity boosted to 116,000 bpd, up from 84,000 bpd. The additional crude demand is set to be met by domestic supply. 

Related: Trump’s Solar Tariff Confusion Creates An Opportunity

At the same time, Chinese demand is looking fairly tasty, as exemplified in the charts below. Demand growth year-to-date is projected up 550,000 bpd through July, with growth across the board from LPG to fuel oil, jet/kerosene to gasoline.

The multi-year high in the Omani crude benchmark seems the result of a double whammy: limited supply amid a greater pull from China.

(Click to enlarge) 

By Matt Smith

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