US crude stockpiles likely to extend decline
Oil held gains above $43 (Dh158) a barrel ahead of US government data forecast to show crude stockpiles extended declines from a record. Futures added as much as 0.9 per cent in New York after rising 2 per cent in the previous three sessions. Inventories probably dropped by 2.25 million barrels last week, a Bloomberg survey shows before an Energy Information Administration report today. Stockpiles peaked at the end of March. Shale producers in the US Permian basin will be able to make money even if the price falls to the mid-$20s (Dh73.46), according to Scott Sheffield, chairman of Pioneer Natural Resources Co.
Oil in New York and London tumbled into a bear market last week on concerns that expanding global supply will counter output cuts from the Organisation of Petroleum Exporting Countries and its partners including Russia. US crude drillers added rigs for a 23rd straight week, the longest stretch in at least three decades, according to data Friday from Baker Hughes Inc.
“The market is primed for a more aggressive response to really good inventory data,” said Ric Spooner, an analyst at CMC Markets in Sydney. “The upside potential for US output could be limited because of the lower price.”
West Texas Intermediate for August delivery was at $43.66 a barrel on the New York Mercantile Exchange, up 28 cents, at 3:26pm in Hong Kong. Total volume traded was about 19 per cent below the 100-day average. The contract rose 37 cents, or 0.9 per cent, to $43.38 on Monday. Prices are down about 10 per cent this month, the most since July.
Brent for August settlement was 33 cents higher at $46.16 a barrel on the London-based ICE Futures Europe exchange. The contract added 29 cents, or 0.6 per cent, to $45.83 on Monday. The global benchmark crude traded at a premium of $2.50 to WTI.
Weekly US crude stockpiles peaked at a record 535.5 million barrels in the week ended March 31, according to EIA data. While inventories have steadily declined, American oil production has climbed above 9.3 million barrels a day to the highest level since August 2015. a little more than a year after Congress lifted a longtime ban on most foreign sales. Exports could double by the end of this decade, expanding the importance of Corpus Christi to the domestic industry.
To keep the exports flowing, domestic crude will need to remain a cheaper alternative to supplies from traditional producers in the North Sea, West Africa and elsewhere. West Texas Intermediate, the US benchmark pumped from the Permian Basin, has dropped 19 per cent this year, trading at $43.52 (Dh160) a barrel in New York yesterday. On average, it’s been 87 cents a barrel less this year than the standard grade used in Asia, compared with a $2.43 premium in 2016.
Corpus Christi is betting the boom will last. The port, where three major pipelines unload crude shipped from southern Texas and from fields hundreds of miles away in the far western reaches of the state, has received preliminary approval from Congress for a $350 million dredging project that would deepen its channel to 52 feet (16 metres) from 45 feet. That would allow more millionbarrel supertankers to load.
“This area has advantages as an export hub since it’s less congested” than the shipping channel in Houston, the other major Gulf port about 200 miles (321 km) away, Andrew Shepard, a refining and oil-product markets analyst at Wood Mackenzie Ltd., said by telephone from Houston.
Export Hub
Last quarter, ships carrying about 22 million barrels destined for foreign countries left Corpus, government data show. That was almost 30 per cent of the country’s total exports.
Daily export capacity could grow to 2.8 million barrels from 960,000 now, according to port officials. Houston, the second-biggest crude exporting hub, can ship 1.7 million barrels a day, said New Yorkbased Timm Schneider, senior managing director for financial consultant Evercore ISI.
Right now, most of the ships handling crude in the port are Aframax carriers that hold about 600,000 barrels of crude. Once the dredging project is complete, Corpus Christi would be able to handle Suezmax tankers that load about 1 million barrels. The VLCCs like Anne hold as much as 2 million barrels, so they remain too big for the channel.
But producers are looking toward a day when the port can handle those big tankers, too.
“The Permian Basin is the largest basin producing crude in the United States,” Cynthia Walker, Occidental’s senior vice president of marketing and midstream operations, said last month at the company’s terminal in Ingleside, Texas, on the northern end of Corpus Cristi Bay. “It’s the fastest growing in the world.”
The Anne alone could hold 11 days of the company’s daily production in the Permian, which was 185,000 barrels of oil a day at the end of 2016, she said.
Two more pipelines, the EPIC and South Texas Gateway, are slated to open in 2019, bringing more oil to the coast. Several companies have expressed interest in adding storage capacity at the port, LaRue said.
Occidental, Buckeye Partners LP, NuStar Energy LP and Magellan Midstream Partners LP, which operate terminals in the port, are interested in the dredging project to deepen the channel, he said.
The dredging expansion — 60 per cent of which would be funded by the US government — has to win final approval from lawmakers.
“It was a positive sign that both committees gave their initial approvals for the project so quickly,” during meetings in late April in Washington, D.C., LaRue said. “If there is an infrastructure bill and if we are in the infrastructure bill in some fashion, it could be funded quick. It could be done in three years.”