Consistent Declines In Crude Oil Inventories Boosts Oil Prices
The Energy Information Administration once again helped to lift crude oil market spirits this week by reporting another hefty decline in U.S. commercial crude oil inventories for the week ending July 21.
A day after the American Petroleum Institute estimated inventories had declined by a generous 10.23 million barrels—the largest draw of the year according to the API—the EIA said crude oil inventories diminished by 7.2 million barrels, to 483.4 million barrels. The authority reported hefty inventory draws in the last three weeks as well.
Gasoline inventories were also down last week, by 1 million barrels. This compares with a 4.4-million-barrel draw a week earlier. Gasoline production averaged 10.4 million barrels daily, up from 10.1 million bpd the week before, when refineries ran at 17.1 million bpd. Last week, runs averaged 17.3 million barrels daily.
The week so far has been quite good for crude oil prices. On Monday, at the energy ministers’ meeting in St. Petersburg, Saudi Arabia pledged to cut its crude oil exports to 6.6 million barrels daily starting from next month, and Nigeria said it was willing to cap its output at 1.8 million bpd.
At the same time, Halliburton said that the rate of rig additions in the U.S. shale patch is slowing down as sub-US$50 oil prices weigh on many energy companies. In evidence of what Halliburton said, Anadarko became the first shale player to announce a cut in its 2017 capex program of US$300 million because of the stubbornly low prices.
The combination of these factors pushed Brent crude back up above US$50 for the first time in two months, with WTI trading above US$48 a barrel. Headwinds, however, remain—chief among them the likelihood that some OPEC members will slack off in their compliance with the cut deal, after Ecuador last week announced it was quitting it altogether.
Iraq, for example, said it plans to boost production to 5 million bpd by the end of the year, which is certainly incompatible with adhering to its quota. Libya is also ramping up its production.
Meanwhile, oil in floating storage in the North Sea hit another 2017 high this week, at 12 million barrels, according to energy data provider Kpler – one more sign that there is still quote a lot to do before the glut goes away. – Irina Slav
Will The UAE Further Boost Its OPEC Compliance?
Following Saudi Arabia’s pledge to do the same, the United Arab Emirates announced on Tuesday its plans to reduce oil exports beginning in September of this year.
The announcement was delivered on Twitter from UAE’s Minister of Energy, Suhail Mohamed Al Mazrouei, reiterating its commitment to “share in OPEC production cut.”
As for the UAE’s oil customers, we’re talking about mostly Japan, who receives 62 percent of the UAE’s crude oil exports, according to the UAE Embassy website.
Saudi Arabia pointed fingers at OPEC’s less compliant members over the weekend, which included the UAE, who had agreed to shave 139,000 bpd of production to stay under 2.874 million bpd—down from its reference level of 3.013 million bpd. Unshockingly, the UAE, which is comprised of individual emirates that are responsible for managing their own oil production and resource development, failed to hit its production promises every month since the deal was signed.
January reduction 55,000 = 40 percent compliant
February reduction 85,000 = 61 percent compliant
March reduction 118,000 = 85 percent compliant
April reduction 107,000 = 77 percent compliant
May reduction 114,000 = 82 percent compliant
June reduction 115,000 = 83 percent compliant
While overall, the UAE is responsible only for a total of 240,000 barrels of over production throughout the entire six-month period, it remains the fifth largest exporter of crude oil in the world, totaling $46.8 billion in sales each year.
What’s obviously missing from the UAE’s promise is its commitment to stick to the OPEC agreement, which deals with production rather than exports. The UAE consumes less than a third of its total crude oil production—so it is unclear, assuming it continues to overproduce, exactly what the UAE intends on doing with the 10 percent it is shaving off its September exports. – Julianne Geiger
China’s Demand For Imported Crude Oil Set To Rise By 400,000 Bpd
Lower domestic production and continued low oil prices will lead to China’s demand for crude oil imports rising by around 400,000 bpd in 2017, according to a senior manager at Sinopec.
Chinese crude oil imports are expected to exceed 400 million tons this year, and to further rise next year, Zhang Haichao, vice president of Sinopec Group, told Reuters on Tuesday.
The estimate provided by Zhang means that Chinese demand for foreign crude would rise by 400,000 bpd, and for the first time ever, rising imports could make China the world’s top crude oil importer on an annual basis, according to Reuters.
Chinese customs data has revealed that the world’s second-largest consumer of crude oil imported 8.55 million bpd during the first half of the year, or 212 million tons in total – a 13.8-percent annual increase. The growth in imports comes on the back of higher refinery runs after a maintenance period, as well as dwindling local crude production.
The estimates of the Sinopec executive for the increased full-year 2017 imports come despite reports that Chinese refineries are expected to shut nearly 10 percent of the country’s 15.1-million-bpd refinery capacity in the third quarter—the peak demand season, as they continue to grapple with domestic surplus of gasoline and diesel.
But last month, China allowed a second batch of crude oil import quotas for independent refiners and some state-held companies for 2017, setting full-year quotas at a total of 91.73 million tons, or 1.83 million bpd.
At the beginning of this year, analysts predicted in a Platts outlook for 2017 that at an average barrel price of US$55 this year, Chinese crude oil production would continue to drop, by around 5 percent compared to last year. Declining domestic output would raise Chinese crude oil imports in 2017 compared with 2016, analysts said. – Tsvetana Paraskova
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