Crude Oil Imports And Saudi Arabia -- August 15, 2018

Updates

Later, 9:14 p.m. CDT: see this article from oilprice -- a screenshot of that headline is here. Has anyone asked whether Iranian oil is light, heavy, or both? That could make a big difference.

WTI is a light crude oil, with an API gravity of around 39.6 and specific gravity of about 0.827, which is lighter than Brent crude. It contains about 0.24% sulfur thus is rated as a sweet crude oil (having less than 0.5% sulfur), sweeter than Brent which has 0.37% sulfur.

Iranian oil:

• light: 33.6 (heavier than WTI); with a sulfur content of 1.46%, would be considered sour
• heavy: 29.6; with a sulfur content of 2.24%, definitely sour

I'm getting way out in front of my headlights, but this may be interesting. The world's largest consumer of oil (by far): the refineries along the Gulf Coast are optimized for heavy oil. As US refiners maintain/increase production, they will have plenty of light oil, but they need heavy oil. If Iran is a major source of global heavy oil, that changes the equation. I have consistently said that Iran's production does not matter (all that much).

But after seeing the weekly petroleum data today, I'm beginning to wonder if I might be missing something. The data points, again that caught my attention:

• refiners are operating at 98.1% capacity; I don't recall a higher number
• US crude oil inventories (light oil, I imagine) increased a whopping amount, almost 7 million bbls, a build/an increase rarely seen in the past three years
• at the same time, the US appears to be importing "near-record" amounts of oil (heavy oil, I imagine)

For a discussion of this data -- US refiners, heavy oil, light oil, imports, etc., see the original post.

Maybe the oilprice article is onto something. Again, like all articles, this article does not differentiate between heavy and light oil.

From the oilprice article, some data points making a case for higher-priced oil:

• some ultra-bullish hedge funds think that the US sanctions will remove much more than one million bopd
• some think as much as two million bopd could be taken off the market
• one ultra-bullish hedge fund suggests that OPEC "has the lowest spare capacity ever right now"
• that hedge fund suggests $150 in less than two years (18 months to 2 years)
• Iran's oil exports peaked in April this year at 2.7 million bopd; has been dropping every month since
• Bank of America Merrill Lynch: total cut-off of Iranian exports would lead to a price spike above $120/bbl

I'm not convinced that taking 1 - 2 million bbls of "oil" off the global market will make any difference. HOWEVER, taking 1 - 2 million bbls of "heavy oil" off the global market -- after what I saw in the weekly petroleum data today -- makes me think the ultra-bullish hedge funds may be correct -- but if they turn out to be right, they were right because they knew the heavy oil/light oil angle and held that close to their chest; or they did not know that and will simply be lucky.

I'm still not convinced, but it is interesting.

On another note: the 2020 rule that sea-going tankers must move to sulfur-free fuel suggests that Iran could be hit hard -- having sour oil -- as far as I can tell. There are several Iranian gradesa nd I only looked at two of them .... 

The biggest problem I have with the article: this statement without providing support for this statement: "... all-time low spare capacity ..." From the article:

According to Pierre Andurand, who manages the US$1.2-billion Andurand Commodities Fund, the world’s spare capacity is at its lowest ever, and this will be a real issue with global oil supply.

What is the basis of that statement? It's been my impression that experts have been arguing "spare capacity" for quite some time.

Original Post 

This is a blurb I posted earlier following the release of the weekly petroleum report today. See this post also.

Imports? up a huge amount -- up by over one million bbls -- total imports right at 9.0 million bbls -- I haven't seen an increase this big in quite some time; what gives?

Quick: how much oil does the US produce? Somewhere between 10 and 11 million bopd.

So, the US is importing almost as much heavy oil as the amount of light oil that we are producing.

• over the past four weeks, crude oil imports averaged about 8.1 million bopd, almost 1% more than the same four-week period last year; why? 
• why? of course, the report doesn't say why, but this is what I think is going on -- US refineries are optimized for heavy oil; the US produces almost exclusively light oil (how did this happen? President Obama can tell you, but I digress); 
• the refineries are operating at 98.1% capacity; that's a lot of oil -- a lot of light oil, but they need heavy oil to balance out the barbell -- the mix of heavy oil / light oil that the refineries-optimized-for-heavy-oil can actually refine
• there are reports that we are back to exporting "record" amounts of oil from Saudi Arabia; why? we need their heavy oil, now that we can't get enough heavy oil from Canada (Keystone XL killed by President Obama); Venezuela is imploding
• irony: President Obama's staff favored Iran; hated Saudi Arabia; tried to change the balance of power in the Mideast -- Saudi Arabia vs Iran; not only does Trump put the original sanctions back on Iran, but due to the aborted Keystone XL, Saudi Arabia comes back the winner -- and in an era of "lower prices longer," Saudi Arabia needs all the markets it can get

Anyway, that's my two cents worth. That and fifty cents will get you a senior cup of coffee.

By the way, this might also explain the huge growth in US crude oil inventories. The refineries are operating at 98.1% capacity but they don't need more light oil from the Permian or the Eagle Ford or the Bakken; they need more heavy oil overseas.

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