11/09/2016
Wave of Imports Hammer the Oil Market

Wave of Imports Hammer the Oil Market

More crude oil went into U.S. storage at the beginning of this month than any other week in the last 34 years of government records, according to a count by the U.S. Energy Information Administration (EIA). The imports, part of a wave still on the way to our shores, hit a four-year high and overseas exporters continue to pump more.

Bullish traders had been hoping stockpiles were finally falling after two years of oversupply. To start September, crude stockpiles saw their steepest weekly decline since 1999, 14.5 million barrels, likely due to storms that blocked cargo ships from U.S. ports.

OPEC and Beyond
Exporters, led by OPEC (Organization of the Petroleum Exporting Countries) are not yet consummating plans to cut back or halt production, as talks have been bogged down by disagreements between the member states.

Oil producing countries such as Russia, Libya, and Nigeria have all increased output. Russian data shows a post-Soviet era output record after adding 500,000 barrels a day of production, and Libya and Nigeria have combined for an additional 500,000 barrels since OPEC members agreed to push for a production cutback, according to Piper Jaffray Companies’ Simmons & Co. International, an investment bank specializing in the energy industry.

Nigerian output, though, is currently in flux as militants recently attacked a pipeline in the Niger Delta, cutting the country’s output by at least 200,000 barrels.

The amount of crude OPEC loaded onto ships jumped sharply when compared to output from a year ago, according to ClipperData, a firm which tracks ships and U.S. customs data. The 48.4 million barrels currently being shipped by OPEC is a 13% increase over last October, a sign that plummeting oil prices may continue to drop.

Matt Smith, ClipperData’s director of commodity research, says that until the amount of crude oil shipped is reduced, the oil market will not find balance.

OPEC hoped that major non-OPEC producers would join the deal to cut back production levels, but that doesn’t seem likely. The battle for market share between Russia and Middle Eastern producers has sparked crossover in traditional sales markets, including Saudi oil ending up in Poland and Russian crude finding traditional OPEC markets like the Far East.

Hedge Funds Make Their Bets
The next OPEC meeting will take place on November 30th in Vienna, and members could finalize a deal that limits production. Some market watchers are skeptical of a deal, keeping prices deflated. Bearish sentiment has been in the driver’s seat over the past week following Donald Trump’s surprise presidential win on November 8th. Oil prices have dropped steadily as the dollar hovers near a one-year high. Hedge funds meanwhile have cut their net long positions by 80 million barrels to 266 million bbls, with long positions shrinking 24mn bbls and shorts increasing by 56mn bbls.

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