Global Oil Market - Feb 13

[dan_s]

OPEC released its monthly report, which largely confirmed the report from IEA on Friday which claimed that compliance with cuts within the cartel was above 90% in January. In fact, OPEC claimed 93% compliance from the 11 members which have agreed to take part, with Saudi Arabia actually cutting more than it agreed taking its output to 9.748 million barrels per day. The report also slightly revised higher its demand growth forecasts and claimed the oil market will see zero average surplus this year, from 985,000 barrels per day last month.

From John White at Roth Capital. He sends me an energy market report each Monday morning.

Crude Oil/Macro:

Global oil production plunged in January as OPEC and non-OPEC producers curbed supply to accelerate a market re-balancing following one of the largest oil gluts in a generation, the IEA said on Friday, 2/10/2017, as reported by Reuters. Oil supplies fell by around 1.5 million b/d last month, including 1 million b/d for OPEC, leading to record initial compliance of 90% with the agreement reached in December by large oil producers to boost prices. "Some producers, notably Saudi Arabia, are appearing to cut by more than required. This first cut is certainly one of the deepest in the history of OPEC output cut initiatives," the IEA said.

The Paris-based IEA said if the January level of compliance were maintained, the output reductions combined with strong demand growth should help ease the record inventory overhang in the next six months by around 600,000 b/d. In fact, in 4Q 2016, inventories in member countries of the OECD fell nearly 800,000 b/d, the largest drop in three years, the IEA said.

In the same release, the IEA said it had raised its estimates for global oil demand growth in 2017 by 100,000 b/d to 1.4 million b/d, citing recent improvements in industrial activity. Complicating the picture is the rising output of non-OPEC producers. After falling by 800,000 b/ d last year, the IEA estimates non-OPEC output will grow by 400,000 b/d in 2017 with combined growth from Brazil, Canada and the U.S. amounting to as much as 750,000 b/d. "Higher prices are fueling increased investments in U.S. light tight oil activity and long lead-time projects are coming on stream in Brazil and Canada," the IEA said.

Highlights from the EIA Short Term Energy Outlook, released 2/7/2017

Global petroleum and liquid fuels inventories are estimated to have increased by 800,000 b/d in 2016. EIA expects the oil market to be relatively balanced in 2017 and 2018, with inventory draws averaging 100,000 b/d in 2017 and builds averaging 200,000 b/d in 2018.

U.S. crude oil production averaged an estimated 8.9 million b/d in 2016. U.S crude oil production is forecast to average 9.0 million b/d in 2017 and 9.5 million b/d in 2018. U.S. dry natural gas production is forecast to average 73.7 Bcf per day in 2017, a 1.3 Bcf per day increase from the 2016 level. This increase reverses a 2016 production decline, which was the first decline since 2005. Natural gas production in 2018 is forecast to increase by an average of 4.1 Bcf from the 2017 level.

Increased capacity for natural gas-fired electric generation, growing domestic natural gas consumption, and new natural gas export capabilities contribute to the forecast Henry Hub natural gas spot price rising from an average of $3.43/MMBtu in 2017 to $3.70/MMBtu in 2018.

Total U.S. electricity generation from utility-scale plants averaged 11,150 gigawatt hours (GWh) per day in 2016. Forecast U.S. electric generation declines by 0.1% in 2017, and then grows by 1.5% in 2018.

The EIA expects the share of U.S. total utility-scale electricity generation from natural gas will fall from 34% last year to an average of 32% in 2017 as a result of higher expected natural gas prices. The forecast natural gas share is forecast to rise slightly to 33% in 2018. Coal's generation share rises from 30% in 2016 to average 31% in both 2017 and 2018.

Non-hydropower renewables are forecast to provide 9% of electricity generation in 2017 and 10% in 2018. The generation share of hydropower is forecast to be relatively unchanged from 2017 to 2018, and the nuclear share declines slightly in 2018.

U.S. coal production is estimated to have declined by 158 million short tons (MMst) or 18% in 2016 to 739 MMst, which would be the lowest level since 1978. The EIA expects growth in coal-fired electricity generation to contribute to a 3% increase in coal production in 2017. Coal production is expect to increase by 1% in 2018.

Coal exports in November 2016 totaled 6.6 MMst, which was 35% higher than in October and 39% higher than coal exports in November 2015. Despite the monthly and year-over-year increases, the EIA estimates that U.S. coal exports declined by 20% in 2016 to 59 MMst, the lowest level since 2009. Exports are expected to average 51 MMst in 2017 and 50 MMst in 2018.

Venezuela/China/Russia

Venezuela's state-run oil company, PDVSA, has fallen months behind on shipments of crude and fuel under oil-for-loan deals with China and Russia, according to internal company documents reviewed by Reuters. The delayed shipments to such crucial political allies and trading partners, which together have extended Venezuela at least $55 billion in credit, provide further insight into PDVSA's operational difficulties and their crippling impact on the country's unraveling socialist economy. Because oil accounts for almost all of Venezuela's export revenue, PDVSA's crisis extends to a citizenry suffering through triple-digit inflation and food shortages. The total worth of the late cargoes to state-run Chinese and Russian firms is about $750 million, according to a Reuters analysis of the PDVSA documents.

At the end of January, PDVSA was late on nearly 10 million barrels of refined products that the company owes the firms, with shipments delayed by as much as 10 months, according to the documents. It also failed to make timely deliveries of another 3.2 million barrels of crude oil shipments to China's state-run China National Petroleum Corporation (CNPC-NC).

[dan_s]

NEW YORK (Reuters) - Oil on Monday declined by about 2 percent, the most since mid January, as a stronger dollar and signs of rising U.S. crude output pressured prices while an OPEC report showing high compliance with last year's production-cut deal underwhelmed investors.

Brent futures (LCOc1) were down $1.17, or 2.1 percent, at $55.53 a barrel by 12:34 p.m. EST (1734 GMT), while U.S. West Texas Intermediate crude (CLc1) fell 99 cents, or 1.8 percent, to $52.87 per barrel.

Those were the biggest percentage declines for both contracts since Jan. 18.

"A firmer U.S. dollar prompted some risk off trade flow across a range of commodities, with the petroleum futures attracting their share of the selling," Tim Evans, Citi Futures' energy futures specialist, said in a note.

Hopes of U.S. tax cuts to stoke corporate profits and investments lifted the dollar to a near three-week high against a basket of currencies (.DXY), pressuring greenback-denominated oil. [USD/]

The Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, agreed late last year to cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017 to support prices and lessen a glut.

The group's first monthly data since the deal showed that top producer Saudi Arabia made a large cut in its crude output in January, helping boost compliance with the group's supply-reduction deal to a record high of 93 percent.

Saudi Arabia told OPEC that it made an even bigger cut than estimated by the secondary sources, reducing January output by more than 700,000 bpd to 9.748 million bpd - lower than called for under the OPEC deal.

But high compliance had been expected and the report failed to push oil prices into positive territory.

"The good compliance rate of OPEC seems to be priced in. The U.S. rig count from Friday is weighing, the numbers support the shale comeback story," said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.

U.S. oil drillers over the past month have added the most drilling rigs since 2012, bringing the total to 591 rigs, the highest since October 2015, oil services company Baker Hughes said in a weekly report.

Speculators cut net long positions on Brent last week by 10,000 contracts, weekly ICE data showed, highlighting investor concerns about rising U.S. production. [EONGBA0SZ]

Analysts at ABN Amro are sceptical about OPEC production cuts delivering higher oil prices and reduced Brent forecasts for the first half of this year to $50 from $55 a barrel.

(Additional reporting by Karolin Schaps in London and Henning Gloystein in Singapore; Editing by Jane Merriman and Marguerita Choy)