Abudi Zein

The agreement by OPEC and several non-OPEC members to cut crude oil production by a total of 1.8 million barrels a day (MMb/d), which caused a rise in crude prices, kicked in on January 1. Now, more than three weeks in, many in the market remain skeptical that the deal will hold, and are on the lookout for the slightest hint that parties to the agreement may be—for lack of a kinder word—cheating. In today’s blog, “Won’t Get Fooled Again—Monitoring Compliance With The OPEC/NOPEC Deal To Cut Production,” we recap the agreement’s terms, examine how participating producers might try to skirt the rules, and discuss ways to check that everyone is acting on the up and up.

OPEC’s agreement at its November 30 meeting to cut crude oil output has sent prices soaring. Many U.S. producers already are anticipating brighter days, but before anyone pops the champagne it’s important to consider the deal’s potential vulnerabilities, and to factor in other market developments that reduce the agreement’s effect. Today we look at pre-deal maneuvering, the impact of those maneuvers on the level of supply, and the things that could still derail the move to market equilibrium.

On the last day of October 2016, the first-ever shipment of Chinese motor gasoline to the U.S. was delivered to Buckeye’s Reading terminal in New York Harbor. The vessel took a circuitous route to New York, taking on cargo in the Hong Kong lightering zone, stopping in South Korea to take on another parcel of clean product, dropping off some benzene in Houston, and then finally heading to New York. That complicated journey suggests that the economics of a regular China-to-East Coast gasoline trade route are not there (at least for now), but the shipment highlights a trend: China is becoming more assertive as an exporter of petroleum products and the implications are global. In an international market defined by oversupply, inroads by China necessarily result in other producers losing market share. In today’s blog, we examine the impact of rising clean petroleum product exports—particularly from China, but also from India—and the corresponding ripple effects both on the world market and on U.S. refiners.

Net crude oil imports to the U.S. Gulf Coast in 2016 have been running well above the pace set last year, the increase driven by a combination of lower U.S. crude oil production, rising import levels and relatively flat export volumes. The trend toward higher net imports –– an outgrowth of the end of the ban on U.S. crude exports –– is significant in that it affects oil inventories and oil prices. What’s driving this trend, and how soon might net imports peak? Today, we survey recent developments on the crude oil import/export front, with a focus on the Gulf Coast.

Higher gasoline imports to the U.S. East Coast and weaker demand in the region have combined to bloat gasoline inventories, raising the question, what would it take to bring the market into balance? East Coast refinery output is down from this time last summer in response to somewhat lower crack spreads, but not enough to make a dent. Part of the problem is that while gasoline demand turned anemic in the Maine-to-Florida region, it is even weaker in many overseas markets. Also, the skill of East Coast blenders in dealing with a wide variety of supplies has always made the region an attractive destination for international product flows. Today, we continue our look at petroleum product cargo flows, and what they are telling us about the health of the market.