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Page added on January 21, 2016

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What news is good news for oil in 2016?

Business

Welcome to the first version of The Oil Big Five for 2016, when we round up some of the biggest news and trends from the global oil industry and think to ourselves: Wow, things sure have changed since our first post.

But then, that’s oil for you: Things are always changing, and yet some things remain the same. We asked our oil editors and analysts around the world for what they think are outstandingly important drivers in the markets, and these are items they chose, in no particular order.

This is also your chance to weigh in. Tell us in the comments whether any of these topics ring especially true to you, or whether we’ve neglected some other topic that you think is really interesting or has the potential to shake markets. You can also find us on Twitter @PlattsOil and can share your thoughts on this post with the hashtag #oilbig5.

1. US crude exports — to Europe

Last month, the newly unfettered access of US crude oil to global markets made our list, but that’s not the end of the story. One senior editorial leader here said, “The Big Five should really become the Big One this month, all about US crude exports.” While many wondered whether somewhat dubious economics would hobble exports, it turns out that the WTI/Brent spread doesn’t solely determine whether shipments will hit the open seas, and the first cargo of US crude set sail before 2015 closed. Furthermore, European refiners, which have been on a bit of a tear this year with crack spreads, are now eyeing attractive gasoline and naphtha cracks that could help drive up demand for US light sweet crude and condensate. On the other hand, European refiners have been spoilt for choice recently. So can European demand for US crude last?

2. Western Canadian crude prices and production

While the light sweet crude of the US shale plays gets a lot of attention, heavy Canadian crudes rule much of North America and are dealing with some significant pressures. The US dollar price of Canadian heavy has dipped below $20/b for several grades so far in January. Canadian heavy benchmark Western Canadian Select, an unconventional heavy sour, hit $19.82/b January 8, the lowest outright price since Platts started assessing it in April 2006. (The WCS price was alarming the market back in August at $27.47/b, too.) As a result of the price pressure, some companies are pushing up maintenance, and there’s been talk that production could be shut in. Winter is traditionally a period of peak activity in Western Canada, with an average of 530 rigs in operation during a “good” winter drilling season in Alberta, Saskatchewan, Manitoba and British Columbia. But for the week ended December 18, that figure was 158, according to data from the Canadian Association of Oilwell Drilling Contractors. Will prices stifle production this winter, and if so, who could feel the impact most keenly — conventional and heavy producers, or oil sands players?

3. North Sea spot market backwardation

Despite generally weak crude values, physical differentials in benchmark North Sea crude oil grades saw big swings in January, with bids and offers for neighboring cargoes showing a wide divergence in values; a dual market seems to be emerging in the region. January loading cargoes were bid at a significant premium to February loading cargoes of the same grade, meaning there’s backwardation in the spot North Sea market while the rest of the physical and financial crude complex is trading in contango. What gives? PetroIneos, a joint venture between Ineos and PetroChina, became the largest bidder for North Sea crude in the Platts Market on Close Assessment process and bidding for January-loading cargoes 34 times as of January 7, compared with seven bids for December-loading cargoes and no bids for November-loading cargoes. Traders told Platts that PetroIneos’ buying interest appears focused on specific dates, different crude grades than usual for the company, as well as on January-loading cargoes held by Shell. One of our crude managing editors put it into perspective, saying, “This looks at a huge trend in crude buying in the North Sea which was quite controversial, and which demonstrated a very different structure for the January Brent market than that seen for other months.” Is this something that will continue through the rest of January and the winter? Will PetroIneos continue its bidding, or will it back off? And what could prompt the North Sea market to fall back in line with the larger crude complex?

4. US Gulf Coast vacuum gasoil

Refined oil products along the US Gulf Coast are at multiyear lows — as are products around much of the world — and it’s a good time to remember that crude isn’t the only input to start the refinery process, one managing editor said. VGO producers in various parts of Europe and Russia are traditionally long in the product, and market sources in the US are reporting cargoes of feedstock are coming to US shores regardless of whether there’s demand or open arbitrage opportunities. VGO is used to make gasoline, among other things, but while gasoline demand is strong, outright prices are also dipping under $1/gal. On January 15, VGO barges at Houston fell on news that there will be a US-bound cargo coming from Colombia, and high-sulfur VGO has held value or fallen 25 of the last 26 trading days. Looking later in the year, a new Russian refinery is expected to add to the Transatlantic flow of VGO. “I guess people are getting a real shock with ships entering Gulf Coast waters unsold,” a European feedstocks trader said to Platts. “I think now there is a sudden realization that this market is not in good shape.” Will VGO values continue to fall as potentially more cargoes stack up in the Gulf of Mexico, and what sort of ripple effects could this have on downstream gasoline or diesel?

5. The Saudi-Iran conflict’s impact on oil prices

The worldwide glut of crude oil means that the way markets respond to news is much different than in the past, as we noted on The Oil Big Five in February 2015, when Saudi Arabia’s King Abdullah died. We got a reminder with the new year, when a conflict between Saudi Arabia and Iran didn’t send prices soaring as it may have in years gone by. International oil prices were momentarily lifted, but analysts don’t view the escalated tensions between the two countries as threatening to the global oil supply anytime soon. Together the countries account for 13 million b/d of global oil output, but as we’ve noted before, OPEC members are battling for market share both among themselves as well as within a larger world of well-supplied producers. So what would it take for global oil prices to lift significantly? What sort of news could bump up prices and, more impressively, keep them up?

Platts



12 Comments on "What news is good news for oil in 2016?"

  1. JuanP on Thu, 21st Jan 2016 8:31 am 

    ISIS attacks Lybian oil infrastructure, https://www.rt.com/news/329644-libya-attack-isis-port/

  2. JuanP on Thu, 21st Jan 2016 8:52 am 

    First US crude shipment arrives in Europe! https://www.rt.com/business/329649-us-oil-export-tanker-europe/

    We are all saved now!

  3. JuanP on Thu, 21st Jan 2016 8:54 am 

    Or maybe not? World facing wave of epic defaults! https://www.rt.com/business/329566-world-global-defaults-economy/

  4. rockman on Thu, 21st Jan 2016 9:08 am 

    “Last month, the newly unfettered access of US crude oil to global markets made our list, but that’s not the end of the story. One senior editorial leader here said, “The Big Five should really become the Big One this month, all about US crude exports.” It is truly appalling that a company like Platts is perpetuating this bullsh*t that the US is suddenly going to be exporting significant volumes of oil for the first time despite the fact that we exported (according to the readily available data from the EIA) over 160 million bbls of oil in just 2015 alone. Since the oil “ban” was written into law the US has exported 1.5 BILLION bbls of oil. Yes: the 600,000 bbls of US shipped in early January from Texas to Italy was the first load AFTER the so called ban was lifted. But not the first shipped to Italy: last year we shipped 1.2 million bbls of oil to Italy BEFORE the “ban” was lifted.

    Reducing oil sands production a good thing for US companies? To some degree. But understand US companies have been selling about 130 MILLION BBLS per year of our light oil production to those oil sands producers to blend with their crap. Cut oil sands production and we lose that much of the market: Canada produces about 150 million bbls per year of the same light oil they use to mix with the oil sands production. Losing market share during a low price period is NOT A PLUS.

    So VGO import prices are falling. Great news for the refiners…not so much for the rest of the oil patch. Apparently Platts isn’t aware that the different sections “oil patch” deal with very different and often competing dynamics.

    “…but analysts don’t view the escalated tensions (in the Middle East) between the two countries as threatening to the global oil supply anytime soon.” So again good news for the oil patch similar to those great new “export opportunities”? Platts really does seem to have a problem separating the different actors in our global oil theater when it comes to winners and losers.

  5. JuanP on Thu, 21st Jan 2016 9:11 am 

    This is good news for the Russian oil industry, https://www.rt.com/business/329647-ruble-plunge-continues-oil/

  6. JuanP on Thu, 21st Jan 2016 9:22 am 

    Rock, I mostly put that link up there about the “first US oil shipment to Europe” to see if you took the bait, but the article beat me to it. Ad Platts to the long list of institutions that used to have some credibility, but have become nothing more than propaganda tools in today’s world. It seems to be a global phenomenon, almost everyone’s a liar or a crook these days, particularly those in power, though there are a few exceptions here and there.

  7. rockman on Thu, 21st Jan 2016 9:34 am 

    That’s rather out of date news Juan: from June of 2015:

    U.S. exports of ultra-light crude, also known as condensate, have doubled since the start of the year, with most shipments headed to Europe, according to traders familiar with the deals and data from an energy consultant. The United States exported between 120,000 and 140,000 bbls/day of condensate last month up from about 60,000 bpd at the start of the year. The rise comes as more companies look to take advantage of the ability to ship the oil overseas, including to places like the Netherlands, France, South Korea and Brazil. “One of the main surprises is that the majority of the exports have been to Europe rather than anywhere else said Abudi Zein, chief operating officer at ClipperData.

    Enterprise Products Partners led the pack with 1.8 million barrels of exports per month, or 60,000 bpd. It sold a year’s supply to Mitsubishi Corp and Vitol at the start of this year. {FYI: Vitol sold that recent shipment to Italy} BHP Billiton has been selling a 700,000-barrel cargo every month, though has delayed a plan to double exports to two cargoes a month due to production issues, traders said. BP started exports in February and also shipped out cargo in April, said a trader who tracks the movement of U.S. condensate. It had another cargo due to load at the end of June which will head to Europe. BHP and BP did not respond to requests for comment. Meanwhile, in the first condensate shipment to Latin America, some 636,000 barrels reached Petrobras’ San Sebastiao dock in May, according to data from ClipperData and trading sources.

    The oil exported by Enterprise, BHP and BP is of a heavier grade with API gravity at 52-54 degrees, which goes to Europe, traders said. API gravity is an indicator of the crude’s density and hence its quality. Asian refiners prefer lighter grades of API with a gravity of 61 degrees containing more petrochemical feedstock. This grade is exported by Royal Dutch Shell, Plains All American LP and Trafigura.

  8. Kenz300 on Thu, 21st Jan 2016 9:44 am 

    The old “business as usual” men running oil companies need to wake up and see that the world is quickly moving to safer and cleaner alternative energy sources.

    There Are Now More Solar Jobs In America Than Oil Jobs

    http://www.huffingtonpost.com/entry/solar-jobs-rising_569409e5e4b0cad15e65be87

    Half of U.S. Fracking Industry Could Go Bankrupt as Oil Prices Continue to Fall

    http://ecowatch.com/2016/01/18/fracking-industry-bankrupt/?utm_source=EcoWatch+List&utm_campaign=bddf330f10-Top_News_1_18_2016&utm_medium=email&utm_term=0_49c7d43dc9-bddf330f10-86023917

  9. rockman on Thu, 21st Jan 2016 10:56 am 

    Juan – lately I’ve been very tempted to put a thread up consolidating all the FACTS that show how much bullsh*t is coming out of the MSM et al these days.

    Nothing much new…just the bits and pieces I’ve posted separately. It just seems likely suddenly an entire new “energy universe” seems to have developed which has very little in common with the real world we know.

  10. JN2 on Thu, 21st Jan 2016 1:49 pm 

    rockman: love your comments but it’s sometimes hard to distinguish what you’re quoting and what you’re commenting on.

    How I’d like to see it:

    >> XYZ said “qwe qwe” <<

    Qwe? What is this guy talking about? LOL!

  11. rockman on Thu, 21st Jan 2016 2:47 pm 

    JN – Will try to be more clear: If I’m quoting someone on this site or pulling something off the net I try to bracket their words with “…”. I missed doing that in the long post to Juan above: all those were someone else’s comment. Also if I insert my thoughts inside someone else’s comment I try to use {…}. As far as “qwe” goes I can’t find that one.

  12. Kenz300 on Fri, 22nd Jan 2016 10:14 am 

    The world is in transition to safer, cleaner and cheaper forms of energy……… change is hard for old people that are stuck in their ways and only know how it was in the past…….young people see the future……..and work to make change happen………

    100% electric transportation and 100% solar by 2030 – AltCars Expo

    https://www.youtube.com/watch?v=RBkND76J91k


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