Global Oil Market is tightening - Aprl 3

[dan_s]

Phil Flynn's 4/3/2017 morning comments:

OPEC is committed to extending production cuts as the global oil market continues to see inventories fall. While the U.S. oil rig count rose, it plummeted in Canada offsetting the gains. This comes after Morgan Stanley (NYSE:MS) reports that crude stockpiles are, "less visible, as supply in Asia and in floating storage have fallen by 72 million barrels this year." The bears are going to have to face reality as the global market moves from oversupply to deficient. You can’t wait for the OPEC accord to fall apart because it is not going to happen. The lack of major investment in production will start to show up and the oil cycle will go on like it always has. Even as talk about a resumption of Libya oil exports make the rounds the reality is that Libya will not be a reliable supplier anytime soon.

Reuters is reporting Libya's Sharara oil field resumed production on Sunday after a week-long shutdown when a pipeline linking it to an export terminal was blocked, a Libyan oil source told Reuters. Crude from the field is due to reach the Zawiya terminal later tonight the source said, declining to be identified because he was not authorized to speak to the media. NOC declared force majeure on exports of Sharara crude on March 28, a day after the shutdown of the field. The force majeure remains in place for now, the source said but added it could be lifted as early as Monday morning.

The source said the state-owned National Oil Corp's Chairman Mustafa Sanalla was able to convince the group which blocked the pipeline from the field to the Zawiya terminal of the importance of resuming oil flows unconditionally.

The field was producing around 220,000 bpd before the shutdown.

OPEC cuts are mounting, taking its toll on global supply. While the market is fixated on U.S. supply and U.S. rig counts, the oil world outside of the U.S. is tightening. Oil rig counts around the globe are falling. The Canadian oil rig count fell by 30 last week and by 21 the week before. The U.S. is about the only place where oil rigs are being added and globally we are down 77 rigs and that's where we were a year ago.

Gasoline RBOB Futures are rising as the summer blends will soon be taking hold. Gasoline demand is surging and the refiners are working furiously to keep up with demand. Refiners should start refining record amounts of crude oil in the coming weeks and that should start to reduce U.S. oil supply. U.S. pool and product exports will rise as well. We could see U.S. oil inventories start to fall sharply in coming weeks.

Distillate demand should start to rise as farmers get ready to plant what is supposed to be the most acres of soybeans ever planted. MarketWatch reports that soybean planted area for 2017 is estimated at a record high of 89.5 million acres. If realized, that would be an increase of 7% from last year’s record 83.4 million acres, according to the USDA’s Prospective Plantings report. Corn is still king, but just barely. Farmers intend to plant 90 million acres in 2017, USDA said, down 4% from last year. Farmers intend to plant 46.1 million acres to wheat in 2017, down 8% from the realized total in 2016. Of that, 32.7 million acres are expected to be planted to winter wheat, down 3% from 2016. Analysts had widely expected a shift toward soybean acres given expectations the crop would be relatively more profitable than corn in the coming year. The number of acres that can be shifted between the crops can be constrained, however, by crop-rotation practices and other factors.

Natural gas is strong again as the structural problems in this market are becoming more apparent. With U.S. production falling below 70bcf a day, the market realizes that prices must stay strong if demand is going to be met this summer. < As I have been telling you for several weeks in my podcasts, the U.S. natural gas and NGL markets are going to be much tighter this year than they were a year ago. If we have a HOT SUMMER that increases natural gas demand for power generation, then we have a shot at $4.00/mcf gas by Q4. My forecasts now assume $3.50 for Q4. - Dan

[dan_s]

Benny Wong – Morgan Stanley April 3, 2017 3:50 AM GMT

U.S. gasoline and distillate demand posting a sharp rebound. After a slow start to
the year, U.S. gasoline demand has picked up as we head into summer driving
season with the EIA posting demand of ~9.3 MMBbl/d (trailing 4-week basis), for
the week ending 3/24. This is 6% above average and have rebounded
13% since mid-to-late January when demand was ~8.2 MMbbl/d. This is an
encouraging sign there will be strong demand to soak up supply as we anticipate
gasoline production to ramp in the coming months as US spring refining
turnarounds end.

Distillate demand has also exhibited a similar strong trend with
the 4-week trailing figure reaching 4.1 MMBbl/d, 11% above average and up 22%
from the lows in mid- January.
------------------------
IEA forecasting that refiners will draw 1.9 million barrels per day more crude oil from storage in Q2 than they did in Q1. Refinery utilizations is ramping up. - Dan

[dan_s]

PetroChina Production Down 5.3% in 2016, Further Drops Expected

Decreasing production creates demand for foreign crude

PetroChina reported fourth quarter results on Thursday, showing net earnings of ¥7.9 billion ($1.15 billion), or ¥0.04 per share. While not a loss, this is the lowest profit in the company’s history, according to the Business Times. Total revenue was down to ¥1.62 trillion, 6.3% below 2015 levels. Crude oil production decreased by 5.3% to 920.6 million barrels.

Like many other oil and gas producers, PetroChina prioritized decreasing costs in 2016 as a response to lower prices. The company reports that total oil and gas lifting costs decreased by 10.1% in 2016 to $11.67/bbl.

Total CapEx is projected to be ¥191.3 billion, up 11% from the ¥172.4 billion spent in 2016. This increase is unusual, as PetroChina’s CapEx has decreased steadily since 2012. About three quarters of this will be spent in the E&P side of the company, while the remaining quarter will be split between refining and transportation. Production will continue to decrease, however, with oil production dropping by about 4.5% in 2017.

PetroChina reports that its exploration activities were highly successful last year, with multiple oil and gas fields identified. Six oil reservoirs with at least 730 million barrels of oil in place were found, and five gas field with at least 3.5 Bcf of gas in place. Spending in 2017 will continue to explore several major basins in China and begin to develop the fields discovered in 2016.

Chinese imports grew by 12.5% last year

Overall, PetroChina’s results mirror those of the other national oil companies, Sinopec and CNOOC. Each has seen production decrease in the last year as lower prices made many operations uneconomic. Overall oil production in China dropped by 8% in 2016, the first annual decrease since 2009. Demand growth in China has not stopped though, and imports rose by 12.5% in 2016.

According to Reuters, Sinopec is responding to this increase in demand by looking to new frontiers for supply. Imports from North and South America hit an all-time high in March, reaching 14% of total Chinese oil imports. While Brazil, Venezuela and Columbia currently supply most of China’s imports from the Americas, the recent growth of U.S. exported crude will make the U.S. a potential supplier also.

Refining capacity is increasing quickly to supply domestic demand. According to Reuters, China plans to add nearly 2 MMBOPD of refining capacity by 2020, growing total capacity to 12.5 MMBOPD. These increases, combined with growth in India and elsewhere in the continent, will make Asia account for one-third of the world’s total refining capacity by 2020.

[dan_s]

“With the U.S. summer driving season approaching, the short-term focal point should not be on oil inventories, but rather on product inventories and refinery margins, known as crack spreads. While U.S. oil inventories are at record highs, oil cannot fuel the summer driving season. Only gasoline and diesel can. And gasoline inventories fell last week for a sixth consecutive week, while distillate inventories -- which include diesel -- fell for a seventh consecutive week. In other words, there is plenty of crude oil, which is a raw material, but there has been a decline in the actual refined products that drivers consume. Product inventories fell in last week’s DOE report by a combined 6.2 million barrels, bringing the total product inventory decline over the past six weeks to 36.5 million barrels. That's the biggest six-week drop in almost 11 years -- and the summer driving season doesn’t even start for another seven weeks.” - Bloomberg

READ THIS: https://www.bloomberg.com/view/articles ... ntory-data