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Last Updated: May 21, 2018
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Total liquid fuels inventories return to five-year average levels in the United States and the OECD


The extended period of oversupply in global petroleum markets that began before the Organization of the Petroleum Exporting Countries (OPEC) November 2016 agreement to cut production has ended, and the large buildup of global inventories during that period has now been drawn down. As OPEC plans to reconvene on June 22, markets now appear more in balance, but uncertainty remains going forward.


The November 2016 OPEC supply agreement took effect in January 2017, whereby OPEC member countries agreed to reduce crude oil production by 1.2 million barrels per day (b/d) compared with October 2016 levels and to limit total OPEC production to 32.5 million b/d. In addition, Russia agreed to reduce its crude oil production. OPEC extended the agreement in November 2017, with the production cuts remaining in place until the end of 2018.


Since January 2017, one of the primary indicators of a tightening world oil market has been a decline in crude oil and other liquids inventories. After sustained increases in quarterly global liquid inventories from mid-2014 through most of 2016, inventories declined throughout 2017 and into the first quarter of 2018 (Figure 1).

Figure 1. World liquids fuels production and consumption balance


Data for global petroleum inventories are not collected directly. Instead, increases or decreases in global inventories are implied based on the difference between world production and world consumption estimates. However, inventory data for the United States and for countries within the Organization for Economic Cooperation and Development (OECD) are available and can indicate what is happening globally.


From January 2017 to April 2018, U.S. crude oil and other liquids inventories decreased by 162 million barrels while OECD inventories decreased by 234 million barrels. Over this same period, U.S. and OECD crude oil and other liquids inventories moved from 229 million barrels and 334 million barrels, respectively, higher than their five-year averages to 16 million barrels and 2 million barrels lower (Figure 2).

Figure 2. Commercial crude oil and other liquids inventory versus five-year average

Between the first quarter of 2017 and the first quarter of 2018, estimated total world petroleum and other liquids production rose 1.6 million b/d. OECD petroleum and other liquids production rose 1.3 million b/d, and most of this growth came from increased crude oil production in the United States, which increased by 1.2 million b/d, from 9.0 million b/d to 10.2 million b/d. Total OPEC petroleum (crude and other liquids) production increased by 0.4 million b/d over this period. Total OPEC crude oil production remained lower than the 32.5 million b/d agreement level, increasing 0.27 million b/d to 32.4 million b/d.


Total world petroleum and other liquids consumption, on the other hand, increased by an estimated 1.9 million b/d between the first quarters of 2017 and 2018, exceeding the growth in production and resulting in inventory declines. This consumption growth occurred primarily in the United States (0.6 million b/d), China (0.5 million b/d), and other Non-OECD Asia (0.6 million b/d) (Figure 3).

Figure 3. Change in world petroleum production and consumption Q1 2017 to Q1 2018


The days of supply measure (current inventory level divided by next month’s estimated consumption) provides additional insight into market balances. Between January 2017 and April 2017, U.S. and OECD crude oil days of supply fell by 11.5 and 4.5 days, respectively, to 59.2 and 60.6 days. U.S. crude oil and other liquids days of supply fell from 12 days higher than the five-year average to 3.6 days lower. OECD crude oil and other liquids days of supply dropped from 7.4 days higher than the five-year average to 1.6 days lower (Figure 4).

Figure 4. U.S. and OECD crude oil and other liquids days of supply versus five-year average


EIA forecasts that the tightening trend in global petroleum markets will reverse. In the May 2018 Short-Term Energy Outlook, EIA forecasts that both U.S. and OECD petroleum and other liquids inventories will return to surpluses compared with their five-year averages, although on a smaller scale compared with the period between 2015 and 2016. U.S. and OECD days of supply are forecast to remain in a band that is close to the five-year average level through 2019. However, additional uncertainty about future global oil market balances remains in light of, among other factors, the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) and the continued instability in Venezuela.


U.S. average diesel price increases


The U.S. average regular gasoline retail price for May 14, 2018 was $2.87 per gallon. Please note that on May 14, 2018, EIA implemented new statistical methodologies for conducting the Motor Gasoline Price Survey. Because of these changes, the published price estimates this week are not directly comparable with those published for May 7, 2018, which were based on EIA’s previous sample.

The U.S. average diesel fuel price increased nearly 7 cents to $3.24 per gallon on May 14, 2018, nearly 70 cents higher than a year ago. Midwest prices rose over eight cents to almost $3.18 per gallon, West Coast and Rocky Mountain prices each rose nearly seven cents to $3.73 per gallon and $3.32 per gallon, respectively, and East Coast and Gulf Coast prices each rose nearly six cents to $3.24 per gallon and $3.01 per gallon, respectively.


Propane/propylene inventories rise


U.S. propane/propylene stocks increased by 1.7 million barrels last week to 40.4 million barrels as of May 11, 2018, 12.3 million barrels (23.4%) lower than the five-year average inventory level for this same time of year. Midwest, East Coast, and Gulf Coast inventories increased by 0.8 million barrels, 0.6 million barrels, and 0.4 million barrels, respectively, while Rocky Mountain/West Coast inventories decreased by 0.1 million barrels. Propylene non-fuel-use inventories represented 7.2% of total propane/propylene inventories.


For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

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The New Wave of Renewable Fuels

In 2021, the makeup of renewables has also changed drastically. Technologies such as solar and wind are no longer novel, as is the idea of blending vegetable oils into road fuels or switching to electric-based vehicles. Such ideas are now entrenched and are not considered enough to shift the world into a carbon neutral future. The new wave of renewables focus on converting by-products from other carbon-intensive industries into usable fuels. Research into such technologies has been pioneered in universities and start-ups over the past two decades, but the impetus of global climate goals is now seeing an incredible amount of money being poured into them as oil & gas giants seek to rebalance their portfolios away from pure hydrocarbons with a goal of balancing their total carbon emissions in aggregate to zero.

Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.

Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.

This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.

But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.

In a parallel, but no less pioneering lane, France’s TotalEnergies has announced that it is developing a 100% renewable fuel for use in motorsports, using bioethanol sourced from residues produced by the French wine industry (among others) at its Feyzin refinery in Lyon. This, it believes, will reduce the racing sports’ carbon emissions by an immediate 65%. The fuel, named Excellium Racing 100, is set to debut at the next season of the FIA World Endurance Championship, which includes the iconic 24 Hours of Le Mans 2022 race.

But Chevron isn’t done yet. It is also falling back on the long-standing use of vegetable oils blended into US transport fuels by signing a wide-ranging agreement with commodity giant Bunge. Called a ‘farmer-to-fuelling station’ solution, Bunge’s soybean processing facilities in Louisiana and Illinois will be the source of meal and oil that will be converted by Chevron into diesel and jet fuel. With an investment of US$600 million, Chevron will assist Bunge in doubling the combined capacity of both plants by 2024, in line with anticipated increases in the US biofuels blending mandates.

Even ExxonMobil, one of the most reticent of the supermajors to embrace renewables wholesale, is getting in on the action. Its Imperial Oil subsidiary in Canada has announced plans to commercialise renewable diesel at a new facility near Edmonton using plant-based feedstock and hydrogen. The venture does only target the Canadian market – where political will to drive renewable adoption is far higher than in the US – but similar moves have already been adopted by other refiners for the US market, including major investments by Phillips 66 and Valero.

Ultimately, these recent moves are driven out of necessity. This is the way the industry is moving and anyone stubborn enough to ignore it will be left behind. Combined with other major investments driven by European supermajors over the past five years, this wider and wider adoption of renewable can only be better for the planet and, eventually, individual bottom lines. The renewables ball is rolling fast and is only gaining momentum.

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Market Outlook:

  • Crude price trading range: Brent – US$71-73/b, WTI – US$68-70/b
  • Global crude benchmarks have stayed steady, even as OPEC+ sticks to its plans to ease supply quotas against the uncertainty of rising Covid-19 cases worldwide
  • However, the success of vaccination drives has kindled hope that the effect of lockdowns – if any – will be mild, with pockets of demand resurgence in Europe; in China, where there has been a zero-tolerance drive to stamp out Covid outbreaks, fuel consumption is strengthening again, possibly tightening fuel balances in Q4
  • Meanwhile, much of the US Gulf of Mexico crude production remains hampered by the effects of Hurricane Ida, providing a counter-balance on the supply side

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