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Wed, 22nd February 2017

Anirudh Sethi Report

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Archives of “Barrel” Tag

Oil climbs above $57 after non-Opec producers agree cut

The price of Brent Crude, the international oil benchmark, has risen above $57 for the first time since July 2015 after Opec won the support of countries outside its cartel for its planned supply cuts.

Russia, alongside 10 other countries including Mexico, Oman and Azerbaijan agreed to reduce their production by 558,000 barrels a day on Saturday.

The agreement, coming on top of Opec’s earlier promise to curb output by more than 1m barrels a day, has helped Brent to climb a further 5 per cent on Monday morning, to $57.06 per barrel.

WTI, the US benchmark, is also up 5.2 per cent this morning to $54.21 per barrel, its highest level since October 2015.

Fitch: OPEC Deal A Big Step Towards Market Rebalancing -Full Text

Fitch Ratings-Moscow/London-01 December 2016: OPEC’s agreement to cut production by 1.2 million barrels of oil per day, and the potential agreement to cut with non-OPEC countries, should help accelerate market re-balancing and increases the chances of more rapid oil price recovery than previously expected, says Fitch Ratings. But implementation risks remain, including OPEC’s adherence to the agreement and the willingness of other participants, notably Russia, to co-operate fully. These issues and US oil production dynamics will be key drivers of the oil price direction in the medium term.

On Wednesday OPEC agreed to curtail its oil supply, the first cut in nearly eight years. The decision to cut is the first significant intervention to support price since 2008 and is likely to result in a much quicker market re-balancing, which may be further accelerated by the agreement with non-OPEC participants. Russia has already publicly indicated it is ready to cut production in the first half of 2017 by up to 300 thousand barrels of oil per day (mbpd), although it is not completely clear from which level production will be cut. OPEC says that non-OPEC producers have agreed to cut output by 600 mbpd, which would mean a total cut of 1.8 mmbpd, almost 2% of global output.

The OPEC commitment alone could end market oversupply, and should result in a gradual decrease in OECD oil stocks throughout 2017. Using IEA forecasts as an input, we estimate that crude consumption may exceed production by around 400mbpd in 1Q17 and 1,300mbpd in 4Q17 if the deal is extended and the new OPEC quotas are respected; the difference may be even higher if non-OPEC members join the deal. Without the deal, stocks, which we estimate to be around 300 million barrels above their five-year average, would more likely remain flat.

Crude Oil Spikes Above $49 After Shockingly Large Crude Inventory Drawdown

After four weeks of draws, expectations were for a 1.5mm inventory build this week but API reported yet another shockingly large draw of 7.6mm barrels. A susprisingly large build in Gasoline last week briefly confused traders but was confirmed by API with a 2mm barrel build (against exp of +500k). WTI crude spike back above $49 on the news…

API

  • Crude -7.6mm (+1.5mm exp)
  • Cushing +400k (+100k exp)
  • Gasoline +2mm (+500k exp)
  • Distillates -1.3mm

5 Weeks of Crude draws at a seasonally ‘building’ time of year…

Russia Pumped a Record Amount of Oil Last Month – 11.1 Million Barrels Per Day

Amid negotiations about a reduction of oil production between members of the Organization of the Petroleum Exporting Countries (OPEC), Russia reported its highest post-Soviet record oil output.

Russia’s ministry of energy announced Saturday that in September it pumped a record 11.1 million barrels per day (bpd), the most since the demise of the Soviet Union and 4% above the previous output of 10.7 million bpd, according to preliminary estimates. Russia, as well as OPEC members, has struggled with the long recession as oil prices stay below $50 a barrel. In 2008, as a result of the financial crisis, oil prices plunged from $147 a barrel to less than $35.

On Wednesday, during the informal meeting in Algiers, for the first time in eight years, OPEC agreed to outline a deal that limits oil output. “We decided the range of production for OPEC of 32.5 to 33 million barrels a day should be divided between OPEC member countries,” Iranian minister Bijan Namdar Zanganeh said after the meeting. Working out an output freeze as well as the levels of production by each country is the goal of the next formal meeting in Vienna slated for November. However, some doubt whether OPEC will follow through on the commitments made at Algiers.

Russia’s oil minister, Alexander Novak, said after the Algiers agreement was announced, that “Russia will carefully consider those proposals which will be eventually drawn up”, but “our position is keeping the volume of production at the level that has been reached.” Nevertheless, Russia is flexible and is open for joint OPEC efforts to stabilize the oil market.

Crude Spikes After Massive Inventory Drawdown (Most Since Jan 1999)

ollowing last week’s 2nd build in a row (and 5th of last 6), API reports crude inventories collapse over 12 million barrels – the most since Jan 1999 (against expectations of a 905k barrel build). Crude had rallied on the day early hovering aroung $45.50 for a few hours before the data hit, but spiked above$46 after the print.

API

  • Crude -12.08mm (exp +905k)
  • Cushing -0.7mm (exp -900k)
  • Gasoline -2.388mm (exp -750k)
  • Distillates +944k

The biggest crude inventory draw since Jan 1999… We presume this massive drop is some reflection of the shut-ins from the Gulf thanks to the storms. NOTE – in 2013, there was a 10mm-plus barrel draw during a heavy storm season in The Gulf and also in 2009 during a heavy storm season.

BREAKING-Iran targets pre-sanction oil output before considering freeze

Iran will decide whether to join a production freeze once it has reached its pre-sanction level of output, according to a senior executive from its state-owned oil company.

“We are still below the production but we are close,” said Moshen Ghamsari, director of international affairs for National Iranian Oil Company, adding:

Before sanctions we were over 4m barrels [per day] – 4.1m and 4.2m b/d. Now we are 3.8m b/d. If we have West Karoun available on time then it seems we are going to match previous production. This of course in new production we did not have before.

He was speaking on the sidelines of the Asia Pacific Petroleum Conference in Singapore

West Karoun is a cluster of fields in the southwest of the country that is key to boosting the country’s production capacity and freeing up more crude for exports.

Chevron, the second-largest US oil group logs deeper-than-expected quarterly loss

Chevron, the second-largest US oil group, has reported a larger loss than analysts had expected, hit by the fall in oil and gas prices and a squeeze on refining margins.

The after-tax loss was $725m for the first quarter, almost double the average of analysts’ forecasts

The company said exchange rate effects had cut earnings by $319m, contributing about 44 per cent of the reported loss.

Oil and gas production lost $1.46bn in the quarter, outweighing the $735m profit from refining.

John Watson, chief executive, said:

Our efforts are focused on improving free cash flow. We are controlling our spend and getting key projects under construction online, which will boost revenues.

He added:

ALERT : Weekly US EIA oil inventories +6634K vs +1000K expected

US energy inventory data:

  • Prior was -4937K
  • Gasoline inventories -4237K vs -1500K
  • Prior gasoline inventories +1438K
  • Distillate inventories +505K vs +200K exp
  • Refinery utilization -2.2% vs +0.1% exp

The expectations for oil inventories shifted after yesterday’s API data showed a whopping 6.223 million barrel build in crude stockpiles. I suspect the market was looking for something like a 4-5 million barrel rise.

The big surprise is that large draw in gasoline inventories. I suspect it will shake out into a crude rise on that.

Production

Weekly production +0.3% w/w to 9.008 million barrels per day. It’s down 4.3% y/y compared to -4.2% y/y in last week’s report.

The decline in production is also slightly bullish for crude.

Oil Won’t Stage A Serious Rebound Until This Happens

Oil prices have shown signs of life over the past few weeks, as production declines in the U.S. raise expectations that the market is starting to adjust. As a result, Brent crude recently surpassed $40 per barrel for the first time in months.

A growling list of companies are capitulating, announcing production cuts for 2016. Continental Resources, for example, could see output fall by 10 percent. A range of other companies have made similar announcements in recent weeks. The energy world has been speculating about declines from U.S. shale, and the declines are finally starting to show up in the data.

Despite the newfound optimism that oil markets are balancing out, crude oil sitting in storage is at a record high in the United States. Energy investors may have preferred to focus U.S. production declines, or the fall in gasoline inventories in early March, but meanwhile crude oil stocks continue to signal that oversupply persists.

Crude stocks rose once again last week, hitting yet another record of 521 million barrels. Storage levels at Cushing, Oklahoma, an all-important hub where the WTI benchmark price is determined, have surpassed 90 percent of capacity. U.S. output may be starting to decline, but it is doing so at a painfully slow rate.

WTI Slides After API Reports Massive Build In Gasoline & Distillate Inventories

With the seasonally drawdown-prone December completed, we begin seasonally build-prone January with expectations for a 2mm barrel build. However, according to API, both total and Cushing inventory levels tumbled (-3.9mm and 300k respectively). Great news – so why is crude tumbling? Simple – massive builds in end-products again with Gasoline up a massive 7mm barrels and Distillates up 3.6mm barrels. Having ramped off sub-$30 levels aftwr NYMEX closed, and lifted by the Iran-US news, WTI is sliding back rapidly.

The largest 2-week Gasoline invenrtiory build ever…