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Geopolitical Risks Loom Large Over Oil Markets

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Geopolitical risks are looming large…

Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Fruitless OPEC Meeting Sees Oil Prices Edge Lower

Oil rig

Oil prices are subdued to start the week, as the weekend's compliance meeting has done little to allay oversupply fears. As WTI continues to trek on in forty-dollardom, hark, here are five things to consider in oil markets today:

1) OPEC members appear to have pulled a u-turn in relation to discussing production cuts via exports. When the production deal was initially announced, it was suggested that exports would not fully reflect production cut implementation.

We have now had some back-pedaling from key members in recent days: Iraqi oil minister, Jabbar al-Luaibi, said that the OPEC deal is based on exports and not output. Meanwhile, Saudi Arabia is insisting that it is exports, not production, that is key to the market rebalancing.

The chart below of total Iraqi crude export loadings (both northern and southern exports) serves to illustrate how much Iraq is currently complying with the OPEC production deal. Not a lot.

(Click to enlarge)

2) The latest Chinese Customs data jibe with our ClipperData, showing that Saudi Arabia remained top supplier to China in February, as imports rose above 1.2 million barrels per day. The customs data also showed Angolan arrivals dropping to 850,000 bpd.

Our Brazilian data, differs, however. They see February imports at over 400,000 bpd. This is due to timing; we see Brazilian imports at 500,000 bpd so far this month - the highest on our records - as the discount of WTI to Dubai/Oman pulls Latin American cargoes to the Far East. Imports of Angolan crude so far this month have rebounded to above 1mn bpd, but still lag Saudi Arabian volumes.

(Click to enlarge)

3) The chart below is from Barclays (via @chris1reuters), illustrating that oil producers have already hedged a good share of their 2017 production, but not much for next year. This is affirmed by Bank of America, who see U.S. shale producers having already hedged 30 - 40 percent of production this year, but very little of 2018's volume. Related: Is The Private Equity Oil Rush Back On?

As the forward curve for WTI into 2019 drops below $50, producer hedging is likely to keep a lid on prices next year, as producers sell futures to take some risk off the table.


(Click to enlarge)

4) A piece out today discusses how Asian refiners are snapping up cargoes of light crude amid favorable price differentials (as medium and heavy is in greater demand). We can see in the chart below that South Korea continues to pull in more and more light crude. Related: Mexico Sees Its First International Offshore Drilling Success

The lighter the crude, the greater the yield for lighter end products such as gasoline and diesel. Hence, lower relative light crude prices and higher product yields is a double-win for Asian refiners.


(Click to enlarge)

5) Finally, the chart below is super, illustrating how offshore wind is set to boom - and predominantly in China and Europe. What is also super-interesting is the companies that are challenging utilities to build new wind farms: big oil.

Royal Dutch Shell, Statoil and Eni are all looking to push into the wind farm space - given their experience with building projects offshore, as well as to hedge its business versus its leading competitor: renewable energy.

(Click to enlarge)

By Matt Smith

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  • KilonBerlin on March 27 2017 said:
    How can the OPEC be so stupid?! or they just fear that they lose their market (transportation) to the steady developing and improving alternative vehicles... so they are sitting on trillions of liters or gallons of oil, and have to fear that 2017 or 2018 will be "Peak Demand" because of reasons above... only "help" is population growth worldwide (even though the per capita oil production reached its global peak already in the 1970's), so "first buyers" of any motorized vehicle running on gas/diesel (2-wheels or 4-wheels does not matter so much, in the developing countries the 2-wheelers are often the only vehicle the lower class can afford, also a small very poor motorized 2-wheelers,

    in Germany called "Moped" is not as fuel efficient as you would think for a light weight, maximum 2 persons and a small storage box and only few kW engine, but 2 - 3 liters, maybe even a bit less combined and with an efficient driving (not giving full gas always between lights in the city traffic, driving with a moderate gas and use as much of the "rolling power" instead of breaking at every light, since the 2-wheelers do not have a "Dynamo" or so like some bycycles which only have light is the dynamo is put on the tire, making it much more difficult to use the bike, but you create your own power by this :D

    Oil is coming to an end, end of its best time until maybe we found another way to use it.... I mean the oil industry have been in that situation already over 125 years ago where a alternative for the oil market was on its way... Thomas Edison, Patent Number 223898 in the US on 27th January 1880 for a "electric light bulb". It took some years until production, shipping, selling, and laying of electricity lines or building of the power plants was ready, so it was around ~1900 when it became a serious problem, but already than they had contact to most car pioneers, which wanted to use electric propulsion (most efficient, only range problem, but back than it was only important that it drives, and it was excellent if it could drive as fast as a horse was riding...

    range was not a real thing they worried about, Ethanol combined maybe with some other agrar oils would be the favorite method since tractors were existing and I think reduced man demand already in its 1st generation by 30% or more, the tractors and other agricultural vehicles later reduced it by 90% I think, 1 instead of 10 workers...

    So first buyers or switching from 2 to 4-wheels is the only way to keep up demand, but China is weak, 2016 was very good because a tax cut for small (up to 1.4 liter engine?!) cars was running out. In India we had this money banknotes which were no more worth and the limit to "register" the old banknotes and make them worth again was limited to 200 or 400 "units" (dunno their exact currency name) and they banned the 100 and 200 notes I think, so you could trade in 2 or 4 notes (I remember 2, so maybe the limit was 200, one 200 note or 2 x 100), this was really slowing down consumption inside India...

    many of the money is now if you want so nothing worth since the power/energy/amount of people for money laundering is useless with the limit because paying the persons which register their self with ID etc... if they bring 1 month long every day the limit... and after their payment almost nothing is left, lets not think about the "search" for such people...^^ but I thought that India is not a major traffic country for opiates since it lies to the east from Afghanistan, and Golden Triangle production is mostly domestic, India and Turkey are the largest legal poppy producers on the world, Afghanistan has a very small corridor to China and having a Afghan-Chinese border this way, so all that stuff is not going through India, more like to Pakistan for domestic use and a bit to India, but I think they have their methods to avoid such shit, since "such persons" never keep the small notes from daily selling longer than one day, at least in Europe.... time of having money at home, without interest or so are over and were common in Europe and a bit in US because of the 1929 financial crisis and the 20's hyperinflation in Germany after WW1 payment to the Allied forces really made Germany poor......

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