Today is national submarine day, and oil prices are trying not to submerge after a recent sustained rally. Today we get the opening gambit from the triumvirate of reports from the EIA, IEA and OPEC, with the EIA's short term energy outlook on deck first. OPEC is waiting in the wings tomorrow, before the IEA's Oil Market Report follows as the caboose on Thursday. In the meantime, hark, here are five things to consider in oil markets today:
1) We discussed last week how more Atlantic Basin crude is heading toward Asia, due to the relative weakness seen in Brent and WTI versus the Dubai-Oman benchmark. Just as we have seen with less Angolan crude heading to the U.S. and more heading to China, Algerian loadings are following a similar trend.
Our ClipperData show that while flows to Algeria's biggest market, Europe, are holding up, we have seen export loadings increasing to the Asia Pacific region for Algeria's light crude - and dropping off thus far this month to North America:
2) Iran has cut a number of its preferential terms relating to oil sales to India, in response to India cutting the amount of oil it buys from Iran. Iran has cut its credit period to 60 days from 90, while also reducing its shipping discount. India announced last week it would reduce Iranian imports by just over 60,000 bpd.
Our ClipperData show that imports from Iran averaged 550,000 bpd between April - December, which mirror India's ministry data. Imports so far this year are averaging just over 500,000 bpd.
India is the second-largest destination for Iranian crude; China is first. As India looks to put pressure on Iran as it tries to secure development rights to an Iranian gas field in the Persian Gulf, this latest move could either fast-track that decision, or conversely, push more Iranian oil to other leading destinations such as South Korea or Japan.
3) India gasoline demand has shrunk for a third consecutive month, as the country continues to experience the detrimental impact of demonetization from late last year. After the vast majority of the country's currency was taken out of circulation in November in an attempt to clamp down on corruption, oil demand dropped by 5.9 percent YoY in January, the most in 13 years.
India's banknote demonetization has had such a big impact because the majority of the Indian economy runs 'informally' - i.e., via the transfer of cash. Hence, the sudden halt in available cash flow has caused fuel purchasing to dry up. Total fuel consumption was lower year-on-year in February at 3.1 percent, before dropping to just 0.7 percent last month. Although demonetization has dealt a hefty dent to demand, it appears to be recovering.
4) While it is seasonally typical to see retail gasoline prices push to a high for the year as we approach summer driving season, the recent oil price rally is super-charging this move, lifting the national average to just under $2.40/gallon. This is the highest since the latter half of 2015, and prices look likely to push on toward mid-two dollardom as we approach the starter's flag of summer driving season.
5) Finally, stat of the day comes from an estimate from the Boston Consulting Group, who projects that as many as 925 million miles traveled in the U.S. in 2030 will be in self-driving electric cars, as an estimated 4.7 million autonomous electric vehicles join the auto fleet.
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Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
Midstream & Downstream
Global liquid fuels
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)