Conflict in Yemen stirs oil marketsViewSaudi Arabia led a coalition of Sunni allies this morning in air strikes against the Shiite Houthi rebels in Yemen, pushing Brent crude oil prices to rise by around 6%. Disruption of Yemeni crude exports is not the most pertinent concern to shipping markets at the moment, the country produced 133,000 bpd in 2013, but the country’s stability in terms of its strategic location could change shipping dynamics in the area. According to the EIA, roughly 4m bpd of crude oil, mostly likely travelling from the Middle East to the west, transited around Yemen through the Strait of Bab-el-Madeb in 2014.
Venezuelan crude exports to China, US fall in 2014ViewVenezuelan state-owned PDVSA exports from Venezuela in 2014 rose to Europe, although shipments to Asia and the US fell. In line with Venezuela’s strategy to diversify crude oil shipments away from North America, Asia retained the top spot for crude destinations but shipments to the region fell approximately 8.3% to reach 935,000 bpd. Venezuelan exports to Latin America dropped around 8.5% to 418,000 bpd while shipments to the US fell by 8.3% to 953,000 bpd, European shipments took up part of this decline rising by 11.9% to hit 132,000 bpd in 2014.
CPC crude blend exports lower in AprilViewCaspian Pipeline Consortium (CPC) loadings from the Black Sea port of Novorossiysk are scheduled to fall to 815,000 bpd in April, from a recent high of 1.06 million bpd in February, partly due to a three day maintenance closure of the pipeline feeding the port. Additionally, the pier that offloads Suezmax tankers at the Italian port of Trieste, the destination for a third of CPC volumes, is closed for maintenance until mid-May leaving a lack of demand for 135,000 tonne cargoes in place of 85,000 tonne cargoes. Only 55,000 bpd of CPC crude, less than 7% of total volumes, left the Mediterranean last year. Although most of it went to Asia-Pacific, suppliers struggle to sell to the region as the more favourable freight rates for VLCCs are unobtainable as the Turkish straits limit vessels to the Suezmax size and CPC’s high concentration of corrosive sulphurous mercaptan compounds also reduces Asia-Pacific buying interest.
African oil product demand rises 4.8% in 2014ViewDespite violence and political turmoil in North Africa and the Ebola crisis in West Africa, African demand for oil products grew at 4.8% in 2014. North of the Sahara, demand was driven by Algeria where oil product demand surged by 7% to 405,000 bpd and by Egypt where appetite grew by 4.3% to 815,000 bpd, while south of the Sahara Nigerian oil product demand expanded by 9.1% to 468,000 bpd and South African demand turned positive for the first time in two years to a growth of 4% to reach more than 508,000 bpd. Africa’s refining sector remains stagnant, throughput was down in 2014 by approximately 3.5% to 2.3 million bpd out of a total capacity of 3.4 million bpd.
Weekly Oil Price ReviewViewThe volatility of the US dollar highly influenced oil prices this past week, a stronger US dollar makes dollar-denominated commodities more expensive for holders of other currencies. A strong US dollar pushed oil prices down last week, both benchmarks posted weekly losses of approximately $5/bbl. This continued on Monday with a strong US dollar and as the market anguished over the shrinking crude storage capacity in the US and no clear signs of a change in market dynamics as neither the EIA nor the IEA have reported any significant demand or supply impact yet from lower oil prices; April WTI crude futures fell $0.96/bbl while the expiring April Brent contract fell $1.23/bbl. In anticipation of the US Federal Reserve’s press conference on Wednesday, the dollar weakened Tuesday and aided by short-covering, the new May Brent contract managed to squeeze out a $0.07/bbl gain, but rising output in Libya and Iran’s desire to export more oil pending nuclear negotiations exerted downward pressure on the benchmark, while continued storage worries led US crude to trade $0.42/bbl lower. Despite another record build in US crude inventory levels on Wednesday by the EIA, storage capacity at Cushing is now 77% utilised, a signalling of the Federal Reserve that they may raise US interest rates sooner than expected depressed the dollar and boosted the two oil benchmarks on Wednesday; Brent gained $2.40/bbl while WTI rose $1.20/bbl. However, the US dollar rallied the following day and a remark by the Kuwaiti Oil Minister that OPEC had no choice but to maintain production sent oil rocketing down again; Brent fell $1.48/bbl and WTI lost $0.70/bbl. From Monday to Thursday, Brent fell $0.24/bbl to settle at $54.43.bbl and WTI $0.88/bbl to close at $43.96/bbl.
More US refiners capable of processing domestic crude ViewThe US Energy Information Administration (EIA) reported yet again a record high levels in both US commercial crude oil inventories and Cushing stocks of 458.5 million barrels and 54.4 million barrels respectively. A survey by the American Fuel & Petrochemical Industry showed that US refineries are in fact increasingly capable of processing the growth in their own domestic light oil production as forecast by the EIA. The US refining industry is adjusting facilities to process their domestic oil, Platts has reported that US refiners will be able to increase intake of the domestic light oil by more than 730,000 bpd by 2016.
Europe exports more gasoline on the back of strong refining marginsViewEurope is exporting more gasoline to the US and Nigeria as European gasoline crack spreads came close to $15 per barrel in mid-March, a seven-year high for that time of the year. Transatlantic gasoline shipments are rising prematurely this year, they usually rise in April in anticipation of the US summer driving season, as severe cold weather interrupted US refinery production and planned maintenance lowered US Gulf gasoline output. Increased European gasoline exports are also heading to Nigeria as the state-owned Nigerian National Petroleum Corp. published an import tender for an additional 220,000 bpd of gasoline in March in conjunction with efforts to end fuel shortages in the country ahead of the presidential elections at the end of March.
Iranian crude exports could raise significantly if sanctions liftedViewIn light of approaching negotiations, the Iranian Oil Minister has reported that the country will be able to raise crude exports by 1 million bpd within a few months if all international sanctions were to be lifted. According to recent IEA data, Iran produced 2.78 million bpd of crude and exported 1.2 million bpd in February. Iranian negotiators are currently meeting with their European counterparts in Brussels after meeting US Secretary of State John Kerry in Lausanne, the negotiating parties have set a deadline of June 30th to finalise an agreement.
European planned maintenance to peak in May ViewDespite strong margins encouraging European refiners to delay maintenance as long as possible, the amount of European capacity going under maintenance this Q2 will be much higher than last year. European planned maintenance will reach a peak in May of 750,000 bpd of crude capacity and 200,000 bpd of cracking capacity, total crude unit shut-ins will average 630,000 bpd in the second quarter overall. Last year, the average capacity shut in the second quarter was almost half at 370,000 bpd, while maintenance peaked in the first quarter of last year with 550,000 bpd of capacity shut in. Refiners looking to profit off the strong product margins of the past several months have pushed refinery runs to be 900,000 bpd higher in the EU 16 since October compared to 2013, and refinery runs reached 90% of capacity for the first time in six years. However, despite this recent surge in refinery runs more refineries in Europe are still expected to close as a result of overcapacity in the region.
Weekly Oil Price ReviewViewOil prices tumbled this past week amid a strong US dollar and rising US crude stocks. The ECB began bond-buying under its quantitative easing program on Monday, pushing Brent down $1.20/bbl, while an optimistic estimate from Genscape of a smaller inventory build led WTI to gain $0.39/bbl. Circling expectations that the US Federal Reserve will soon raise interest rates as encouraging economic data continues to emerge lifted the US dollar to multiyear highs on Tuesday, Brent fell almost 4% as the dollar-denominated commodity became more expensive for holders of other currencies, and WTI fell more than 3% as anxiety mounted over the likelihood of another record high level in US inventories. The EIA indeed reported on Wednesday another record high level of 448.9 million barrels in US crude inventories and that US crude production continues to grow despite low prices, the spread between the two oil benchmarks widened on this news to $9.37/bbl, from $8.10/bbl on Tuesday, as WTI fell marginally while Brent rose $1.15/bbl. The Houston Ship Channel was reopened Thursday following a collision earlier in the week and a 2.3 million barrel build in Cushing stocks also weighed on WTI as it fell $1.12/bbl, while a weaker US dollar limited Brent’s loss to $0.46/bbl. Overall, from Monday to Thursday Brent lost $2.65/bbl to settle down at $57.08/bbl and WTI fell $2.56/bbl to close down at $47.05/bbl.