Oil & Gas
US oil exports hit an all-time high
November 2017
Brent oil prices hit US$60 a barrel in the late October, its highest level since July 2015 after Saudi Arabia and Russia declared their support for another nine-month extension of OPEC-led output cut deal beyond March 2018. Furthermore, West Texas Intermediate (WTI) crude futures reached US$54.15 a barrel in October, the highest since February.

Brent oil prices extended its rise to above US$60 in the late October following signals from Saudi Arabia and Russia for another extension of the supply cut deal beyond March 2018. OPEC members are due to hold a meeting in November where they are expected to formally agree on another extension of their production cut deal with leading non-OPEC oil producers including Russia. Oil prices were also supported by some other factors in October including the decline in Iraq oil export, ongoing shale-related reductions in U.S. rig counts and drops in U.S. commercial crude oil inventories.

The crude oil exports through the Kirkuk-Ceyhan pipeline in the Kurdistan region is still less than half of the normal level (approximately 600kbpd) prior to the recent political tensions, despite its 13% rise to 288kbpd in the late October. The Kurdistan Regional Government (KRG) exported at an average rate of 544kbpd in 2016, representing 12% of Iraq’s oil output. Iraq has recently added a new single point mooring facility in south, leading to an increase of the country’s oil export capacity by 900kbpd to a total of 4.6Mbpd.

On the other hand, U.S. oil production is among main factors capping oil price gains. U.S. field production of crude oil hit 9.6Mbpd in the last week of October, slightly higher than that of the same period in September, up by more than 1Mbpd yoy. In the second week of October, the U.S. crude oil production experienced a significant decline of 1.1Mbpd on a weekly basis as a result of Hurricane Nate before surging back to nearly 9.5Mbpd in the following week.

U.S. oil exports hit an all-time high of 2.13Mbpd in the week ending on the 27th of October, up by more than five-fold compared to nearly 0.4Mbpd in the same period last year. It averaged 1.8Mbpd in October, which is also a new monthly record after U.S. lifted ban on the crude oil exports in December 2015. Being more than US$6 per barrel in October, the widening Brent-WTI spread has also supported U.S. oil export.  

The U.S. commercial crude oil inventories were drawn by slightly more than 10Mbbl month on month to 455Mbbl in October. In the first two weeks of October, U.S. oil inventories fell by 2.8 and 5.7Mbbl on a week on week basis, reflecting both Hurricane Nate landfall in the Gulf of Mexico and sharp drops in refining rates as autumn maintenance ramped up. Despite high expectations of further reductions, they rose by 900kbbl in the third week, before falling again by 2.4Mbbl wow in the fourth week, translating to a total drop of 10Mbbl in the entire month of October. 

World oil demand is expected to experience a better than previously expected growth of 1.50Mbpd in 2017, following strong growth in oil demand for OECD (particularly the U.S. and Europe) as well as China. World oil demand is expected to grow by an annual average of 1.44Mbpd in 2018, a higher expectation than before following higher growth expectations for OECD Europe and China. The medium-term outlook for oil demand is for a strong annual increase of 1.1-1.3Mbpd on average over the next five years. In terms of the global energy mix, fossil fuels will continue to dominate the market, although their share is expected to fall to approximately 80% and 75% by 2020 and 2040, respectively. Renewables, however, will be the fastest growing type of energy over the following next two decades.

On the supply side of the market, we expect the OPEC-led output cut deal and the U.S. shale production to remain the main balancing factors in the market in the short term. While U.S. shale oil output is expected to grow in November by a monthly average growth of 81kbpd for 11th month in a row, the Organization of the Petroleum Exporting Countries OPEC is expected to agree on another nine-month extension of their production cut deal with Russia and nine other non-OPEC oil producers.