Market Currents: Crude waiting offshore in the US Gulf is rising – FuelFix (blog)

Oil is trying to recover after yesterdays shellacking, but oversupply fears still remain. As rumors and murmurscirculate about an extension to the OPEC production cut, hark, here are five things to consider in oil markets today:

1) Yesterday we mentioned how were seeing a strong influx of arrivals into the U.S. Gulf Coast from the Middle East this week (something we originally alluded to last month).This is in response to an increase in March loadingsheading to the U.S., after Middle East producers favored sending crude to Asia in January and February.

That said, while we are seeing increasing arrivals into the U.S. Gulf, it may not necessarily translate to higher imports this week. After reaching its lowest point since last September early last week, crude waiting offshore in the U.S. Gulf has been rising, up over 9 million barrels in the last ten days:

2) Weve discussed recently herehow more Latin American and West African barrels have been heading towards Asia, pulled by favorable price spreads (i.e., Brent and WTI versus the Dubai-Oman benchmark). It is important to remember, however, that crude flows do come in the other direction.

As our ClipperData illustrate below, the U.S. receives on average one and a half million barrels each month from Southeast Asia, with the majority of this coming from Indonesia (and light sweet Minas crude at that). We also see grades from Vietnam, Malaysia and Thailand, which along with the Indonesian grades generally all head tothe Hawaiian islands.

We do occasionally see some Southeast Asian barrels arrive on the West Coast, however. For example, Kutubu blend from Papua New Guinea was discharged at BPs Ferndale refinery this month. This is the first arrival of the light crude grade to U.S. shores on our records.

3) The chart below is from this Bloomberg article, which endorses our well-worn mantra that OPEC members had the pedal to the metalat the end of last year: they exported as much as they possibly could. Hence, all of the cartels efforts in the first half of this year is being spent unwinding the impact of that exuberance.

Bloomberg uses the IEAs supply and demand projections to highlight that it will take until the end of June for OPEC production cuts to bring stockpiles back in line with Decembers level. This will leave inventories still some 200 million barrels above the 5-year average, leaving OPEC a lot of work still to do to achieve their goal. From this data point alone, it seems fair to assume that OPEC will roll over their production cut deal into the second half of the year.

4) The latest drilling productivity report from the EIA was particularly interesting due to it latest data on drilled but uncompleted wells (DUCs, quack). Not only are we seeing DUCsrise to a new record in the Permian Basin (hark, up 90 or 5 percent to 1864 wells), but Eagle Ford is also rising too (hark, up 26 to 1,285). The ability to bring incremental volume to market as needed only further endorses expectations for an amply-supplied domestic market going forward.

5) Finally, stat of the day comes from this article about Venezuela.Eighteen of PdVSAs 31 oil tankers were out of commission at the end of March due to either being in disrepair, or needing to be cleaned. Vessels are crude-stained, and need to be cleaned before entering foreign ports.

To make up for the lost tankers, PdVSA is leasing more than 50 tankers, at a cost of up to $1 million a month per vessel. With the oil sector accounting for ~90 percent of Venezuelas governmentrevenues, it appears both its oil sector and broader economy is spiralingout of control.

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Market Currents: Crude waiting offshore in the US Gulf is rising - FuelFix (blog)