Oil Prices
Posted: Tue Feb 18, 2014 12:15 pm
Adam Longson, CFA, CPA – Morgan Stanley
February 17, 2014 9:06 AM GMT
Supply concerns continue to support Brent. In the North Sea, several Forties Feb cargoes have been delayed, likely due to recent Buzzard outages. In Libya, production has fallen to 460 kb/d. The El-Sharara field (340 kb/d) was already struggling with storage and logistics, but armed protestors recently shut a key pipeline. Moreover, tensions between the government and army are evident in the Prime Minister’s unheeded calls for the army to reopen ports. Lastly, Angola’s Plutonio exports have been disrupted due to a damaged FPSO hose from a Marlin.
Tight US distillate balances, if sustained, could support near term upside for oil. US distillate stocks are 22% below the 5Y avg, with much of the shortfall in the high demand and infrastructure constrained northeast. As a result, we have seen a reversal of the normal US distillate exports to Europe and an opening of distillate arbs from NW Europe to the US East Coast. Fixture data also show a large increase in NW Europe diesel/gasoil fixtures to the US East Coast (see right), which should help draw distillates in the better supplied EU market. The improved dynamic has lifted both distillate and Brent refining margins in Europe (p.30), which if sustained, could lift local demand for Brent.
DOE approves Sempra’s Cameron LNG liquefaction project to export 1.7 bcf/d of gas to non-FTA countries. Sempra expects first LNG production by 2017. The DOE has now approved ~8.5 bcf/d of US LNG exports to non-FTA countries, near the low-end of our expectations for 8.5-10.5 bcf/d of capacity by 2020. Ultimate DOE approvals will likely exceed our estimates, but similar to LNG imports, many future approved projects are unlikely to be built.
Real demand driving strong China commodity imports, not credit tightness. China’s Jan commodity import figures were record breaking, especially in iron ore and copper. We assert importers stockpiled in anticipation of the seasonal pick-up post the LNY break, which is a good indication for 1H14 demand
February 17, 2014 9:06 AM GMT
Supply concerns continue to support Brent. In the North Sea, several Forties Feb cargoes have been delayed, likely due to recent Buzzard outages. In Libya, production has fallen to 460 kb/d. The El-Sharara field (340 kb/d) was already struggling with storage and logistics, but armed protestors recently shut a key pipeline. Moreover, tensions between the government and army are evident in the Prime Minister’s unheeded calls for the army to reopen ports. Lastly, Angola’s Plutonio exports have been disrupted due to a damaged FPSO hose from a Marlin.
Tight US distillate balances, if sustained, could support near term upside for oil. US distillate stocks are 22% below the 5Y avg, with much of the shortfall in the high demand and infrastructure constrained northeast. As a result, we have seen a reversal of the normal US distillate exports to Europe and an opening of distillate arbs from NW Europe to the US East Coast. Fixture data also show a large increase in NW Europe diesel/gasoil fixtures to the US East Coast (see right), which should help draw distillates in the better supplied EU market. The improved dynamic has lifted both distillate and Brent refining margins in Europe (p.30), which if sustained, could lift local demand for Brent.
DOE approves Sempra’s Cameron LNG liquefaction project to export 1.7 bcf/d of gas to non-FTA countries. Sempra expects first LNG production by 2017. The DOE has now approved ~8.5 bcf/d of US LNG exports to non-FTA countries, near the low-end of our expectations for 8.5-10.5 bcf/d of capacity by 2020. Ultimate DOE approvals will likely exceed our estimates, but similar to LNG imports, many future approved projects are unlikely to be built.
Real demand driving strong China commodity imports, not credit tightness. China’s Jan commodity import figures were record breaking, especially in iron ore and copper. We assert importers stockpiled in anticipation of the seasonal pick-up post the LNY break, which is a good indication for 1H14 demand