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Flow Map Changes of Saudi and Iraqi Crude

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First of all, I want to thank Matt Smith from Clipperdata for the data and great analysis he constantly provides. I learn a lot from him and utilize the data he shares. Let's begin with the track record of the OPEC countries to agreed cuts. Iraq has been the black sheep of the group with its low compliance rates. If Venezuela had not gone through the political turmoil and Saudi Arabia had not taken the burden with reaching higher compliance rates, the oil price outlook nowadays would be totally different. Saudi Arabia and Iraq have worked together during to improve those measures. In February, Iraq's compliance rate reached 85%. In 2017, the flow map of imports has changed dearly. Saudi Arabia cut its imports to the U.S. to a great extent to make an impact in the U.S. inventory levels and to eventually boost the oil prices. We see below the imports of Port Arthur refinery, the largest refinery in the U.S. By the way, it is owned by Motiva, a wholly owned affiliate of Saudi Ara…

CANADIAN CRUDE OIL BLENDS ARE TRADING AT STEEP DISCOUNTS DUE TO PIPELINE CONSTRAINTS

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Let's start with basics. You will see the different benchmark crudes lined up according to their API gravities. Canada is a major heavy oil producer and WCS pricing has been recently hit by the pipeline constraints. In November, Transcanada shut down Keystone Pipeline due to an oil spill which transports 590,000 barrels per day from Alberta to Cushing. They couldn't restore the full capacity rates even after the restart due to pressure restrictions. It was mid December when its average flow rate was restored.  The apportionment rates for the lines 4 and 67 which transport WCS spiked from 21% in December to 36% in January. That increase indicates the demand for shipping oil by pipeline has been higher than the pipeline capacity. When that major pipeline disruption bundled with transportation bottlenecks, WCS pricing has been extremely pressured. Canadian heavy oil producers could not take advantage of the recent rally of oil prices as WCS has been trading at an enormous discou…

LATEST STATUS OF THE KURDISTAN-IRAQ CRISIS

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At the global oil market outlook I posted in August, I stated that the upcoming referendum was about to bring risk premium back to oil markets and it was totally ignored. Despite all the warnings of Bagdad, KRG still pushed ahead with the referendum. During the pre-referendum period, Israel and Russia have been the biggest supporters of Independent Kurdistan. We need to look at the motives of these countries to better understand their stand-points. Israel has been the long-time supporter of Kurdistan movement. Why? First of all, Israel's biggest rival in the area has been Iran which is nothing new. Especially, the nuclear deal that is a hot topic now in the US, has Iran and Israel at the heart of it. As we see at the map below, the areas where Kurds are highly populated are within Iraqi, Iranian and Turkish borders. Any political movement that brings independence to KRG might trigger similar political movements in Iran and Turkey which is the main reason for Iran and Turkey to opp…

KURDISTAN INDEPENDENCE REFERENDUM AND ITS POSSIBLE EFFECTS IN THE OIL MARKET

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There is Kurdistan Independence Referendum this weekend. At the crude oil outlook that I posted on 30th of August, I mentioned this could cause major conflicts in the area and the tension has climbed rapidly since then. It is a major event that can change the politics of the area deeply. I will try to explain how we have come to this point without getting into too much detail. Actually, that area has been problematic for a long time. Especially, during Saddam administration, Kurds in the area suffered deeply. After the US invasion, things have changed in favor of Kurds. They agreed to stay as a semi-autonomous region and have received 17% from Iraqi Government budget. Also, a  lot of foreign investment has been made since then which has changed the economic outline of the area.


 Let's start with talking about the countries that are against the Independent Kurdistan. Iran, Turkey, Syria, and Bagdad regime are all against this. If we look at the map above, we can see the main reason…

WHY WAS HURRICANE HARVEY'S IMPACT IN CRUDE OIL PRICES WAS DIFFERENT THAN HURRICANE KATRINA, RITA AND GUSTAV

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Hurricane Harvey is predicted to be the costliest natural disaster in the history of the U.S. (while we are facing Hurricane Irma). It caused major flooding in Corpus Christi and Houston areas. However, Hurricane Harvey's impact did not increase oil prices, unlike Hurricane Katrina and Gustav. What were the main reasons behind it?
First of all, let's see the impacts of hurricane Katrina and Gustav at the chart below.

Both hurricane Katrina and Gustav caused major disruptions. As you see at the chart below, in 2005, 120 million barrels of crude production was shut in due to hurricane Katrina and Rita and oil prices went up about 10% rapidly. In 2008, almost 60 million barrels of crude production was shut in due to Hurricane Gustav.

The amounts of production that were shut in the Gulf of Mexico were enormous in both 2005 and 2008 but the more crucial point lies at the chart below. In 2003, 27% of the U.S. crude production came from the Gulf of Mexico which made crude oil prices …

THE SWING PRODUCERS OF CRUDE OIL AND A NEW CONTENDER

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LIBYA, NIGERIA, VENEZUELA AND IRAQ       At this part, I will talk about some countries with big swings at their production rates and how it effects oil prices. Libya and Nigeria were the two countries that were exempt from the agreed cuts as both were producing at levels that were quite below the previous year’s rates. Before Arab Spring started, Libya was producing 1.6 mbpd and it could never come close to those rates because of the persisting conflicts in the country.  Libya’s crude-oil output has surged to over one million barrels a day, up from 400,000 in October, while Nigeria’s output has risen to 1.6 million barrels a day, up 200,000 barrels a day since October. So, since the OPEC cut agreements, these two countries added 800.000 barrels per day supply which accounts for the 2/3 of OPEC cuts. This has been a headache for OPEC in the recent months but this situation might reverse very fast too. When it comes to these countries, we should not forget that it is hard to ramp up the…

THE GAP BETWEEN EIA'S WEEKLY ESTIMATES AND MONTHLY PRODUCTION HAS BEEN WIDENING

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Today, EIA revised the monthly production rate for June to 9.097 mbpd. The weekly production estimate for the same period was 9.317 mbpd. The gap between weekly estimate and monthly production for June is 0.22 mbpd that piles up to almost 7 million barrels for the month. As you see at the chart below, the gap between weekly estimates and monthly production rates have been widening in the last three months.

Now, I will share few charts and try to explain the possible reasons for this. All three charts below are covering the same timeline. They all start at the beginning of 2014. As you see at the chart below, production rate rallies from January 2014 to January 2015. In one year, US adds 1.5 mbpd output. However, we see the opposite outcome when we look at the weekly estimates and monthly production rates. Monthly production rates were consistently higher than EIA's weekly estimates. We are on a similar trend as the US has been ramping up the production since October 2016.

Why are…