Petroleum October News

WTI inventories are down this week as the impact from Tropical Storm Nate is realized. Reuters reported that OPEC is leaning towards extending output cuts for nine months and partnering with other producers to do so. Decision might not be reached at OPEC’s November meeting and could be tabled until early next year. Supply disruption potential in Iran, Iraq, Nigeria, Libya, and Venezuela combined with uncertainty over North Korea’s next steps could keep a floor on prices for the near term. Analysts are keenly watching the bond market as a downturn there could raise recession concerns. Risks are more aligned for upside potential currently, so for those looking at 2018 hedges, make sure you have a clear strategy and market point of view so you are ready to act and not let an opportunity get away from you.
Oil futures were trading higher overnight/early morning, but have backed off the weekly high since the EIA inventory report this morning. This morning’s EIA report mirrored the API report from last night, with nationwide crude oil inventories dropping –5.7 M/bbl while both gasoline and distillate stockpiles got a small boost—including some strong builds of over 3 M/bbl for both side of the barrel in PADD3.
The small increase in gasoline stocks marks the 4th consecutive week of inventory builds. Gasoline inventories increased by 0.9 million barrels (MMbbl) to a total of 222.3 MMbbl. At 222.3 MMbbl, inventories are down 5.6 MMbbl, or 2.5% lower than a year ago and are in the upper half of the average range for this time of year.
As expected gasoline demand declined 350,000 barrels this past week, but is still sits above last year’s level and still above 9.0 M/bpd. So far in 2017, gasoline supplied is 1.5% lower versus 2016, per the EIA.
Distillate stocks were up +0.5 M/bbl which was expected to show a slight draw. At 134.5 M/bbl, inventories are down 21.2 M/bbl, or 13.6% lower vs a year ago. Distillate demand came in slightly lower than last week, which might of helped lead to the small build. Some of the wider year-on- year deficits can be attributed to robust U.S. exports as that has kept inventories from backing up. Although demand dropped last week, measurements from the EIA have typically pointed higher. US Distillate export demand continue to surge, with US outbound volumes hitting a fresh record in recent weeks (1.6-mbpd….were at around 1.0-mbpd starting the year…some of that likely related to catch up as ports closed ahead of recent storms, but)… European and China/Asian fuel oil stocks remain low and will compete for our supplies over the upcoming winter demand season.
Another major talking point from this morning’s report are the import/export numbers. The U.S. imported 7.48 M/bpd of crude oil last week, down by 134,000 bpd vs the previous week, while crude oil exports rose 528,000 bpd to 1,798,000 bpd. Total Gasoline import last week averaged 690,000 bpd. The U.S. also imported 107,000 bpd of distillate fuels. However, during the same timeframe, the U.S. exported 636,000 bpd of finished gasoline and 1.4 M/bpd of distillates. In total, U.S. refineries exported 6.8 M/bpd of oil and petroleum products.
The EIA released a interesting article titled “Crude oil and petroleum product exports reach record levels in the first half of 2017”. The largest question being debated right now is how the increase in exports will affect the market going forward and if international demand can hold. The price spreads in the international markets give refineries incentive to export product.
Here are a few highlights from the article: “ Crude oil exports in the first half of 2017 increased by more than 300,000 barrels per day (b/d) from the first half of 2016 to 784,000 b/d, a 57% increase. Petroleum product exports also grew over the same period. Crude oil and propane exports each reached record highs of 0.9 million b/d, and distillate exports reached a record high of 1.3 million b/d.
Following the removal of restrictions on exporting U.S. crude oil in December 2015, total volumes of crude oil exports and the number of destinations for those exports both increased. The United States exported crude oil to 26 countries in the first half of 2017 compared with 17 countries in the first half of 2016. Distillate exports in the first half of 2017 were 14% higher than in the first half of 2016, with exports to South and Central America accounting for most of this growth.
In the first half of 2017, despite consistently strong domestic demand, U.S. exports of total motor gasoline averaged a record high of 756,000 b/d, a 3% increase from the first half of 2016. High levels of domestic production of gasoline contributed to this record-high export level. Mexico was the destination of more than half (53%) of total U.S. gasoline exports in the first half of 2017. In the first half of 2017, Mexico experienced unexpected refinery outages that reduced production of gasoline and distillates even further, and U.S. exports of gasoline to Mexico increased by 27,000 b/d compared with the first half of 2016.