Thursday Dec. 8, 2016

Dec. 8, 2016

Oil Traders Seen Abandoning Ship Refinery Watch By Serene Cheong and Dan Murtaugh, Bloomberg News OPEC’s decision to pump less is poised to deter some oil traders from hoarding crude at sea. The group’s pledge to cut output and ease a global glut has weakened a market structure known as contango that benefited traders who stocked crude on ships to be sold at a potential profit in the future. The planned reductions have boosted the value of earlier-loading oil relative to cargoes for later, meaning returns from stored supplies aren't going to be enough to offset the cost of chartering a tanker for months. In one of the unintended consequences of the decision by OPEC, millions of barrels that were in floating storage could potentially flood back into the market and limit the price jump from OPEC’s supply curbs. That adds to concerns that higher U.S. production next year may offset the group’s first output cuts in eight years, and hamper a sustained recovery in prices that are still more than 50 percent below 2014 levels. “The contango trade is not going to be nearly as profitable next year as it was this year,” said Amrita Sen, chief oil analyst for industry consultant Energy Aspects. “If OPEC follows through with its cuts, you’re going to see global stocks of crude start to draw.” The premium for later supplies of Brent, the benchmark for more than half of the China's private oil refiners have boosted world's oil, shrunk to as little as $1.77 per barrel on Dec. 1, the day after OPEC agreed run rates to a new high, according to to curtail output by 1.2 million barrels per day. That’s not enough to make a profit after industry website Oilchem.net. Operating leasing a giant oil tanker for half a year at a cost equivalent of $3.15 to $3.38 per barrel, rates at teapots in eastern Shandong according to data from a shipbroker and charterer. province rose to a record 59.49 percent As recently as last month, that 6-month contango was at about $4.50 a barrel, which as of Dec. 8. It's the fifth consecutive was a large enough gap to make it potentially viable for traders to profitably store crude weekly increase. for that long. The spread was at $2.60 a barrel as of Dec. 7. Full story on web. Events

Cushing Sees Biggest Weekly Rise Since 2009 Today: PJK's weekly ARA product stockpiles report

Quote of the Day "Vienna is the center of the world again. A positive outcome on Saturday is a must in order to maintain the credibility of OPEC’s efforts.” – Tamas Varga, an analyst at PVM Oil Associates in London, speaking on the upcoming meeting between OPEC and non- OPEC members on Dec. 10 in Vienna

Number of the Day Crude stockpiles at the Cushing, Oklahoma, storage hub rose 3.78 million barrels in the week ended Dec. 2, according to EIA data. That's the biggest weekly rise since January 2009 and $11 billion — Value of the stake brings stocks at the hub to 65.3 million barrels. "The more than 6 million barrel increase in crude Glencore and Qatar's sovereign oil stocks at Cushing over the past two weeks is particular cause for concern because it points wealth fund agreed to buy in Russia's to a sizeable inland oversupply in the U.S.," said Commerzbank in a report today. largest oil producer, Rosneft. — Christopher Sell, Bloomberg Briefs Editor

Today's Oil News Oil Buyer's Guide Dec. 8, 2016 2

Today's Oil News

Supply EIA Top Live Highlights Oil rose above $50 a barrel as research at Bank of America. A investors shifted their focus onto backwardated market, one where prices Each week, Bloomberg News live- whether OPEC will be able to persuade are higher for the contracts closest to blogs the EIA U.S. oil inventory data. other producers to commit to output cuts. delivery than those further in the future, Below are some of the highlights Futures rose 1.3 percent in New York, would help Saudi Arabia and other from yesterday. Follow along next paring a loss of 3.9 percent over the exporters, Blanch said at the bank’s week at TLIV previous two sessions. Prices tumbled annual outlook event. Full story on The EIA's estimated 2.501 million Dec. 7 on the news that OPEC would be Terminal. barrel build in overall U.S. distillate willing to count natural declines, rather Oil-hauling supertankers are bracing inventories fell in line with than insisting on active cuts, in its effort for the worst earnings year since 2013 expectations today. This time of year to secure a 600,000 barrel-a-day output as they become collateral damage in distillate stocks, particularly heating reduction from non-members, people OPEC’s quest to trim a global glut of oil, are building to prepare for colder familiar with the plan said before a crude. So-called very large crude winter months ahead. meeting on Saturday. Full story on carriers, 1,200-foot vessels each hauling — Laura Blewitt, BFW Oil Reporter Terminal. 2 million barrels, will earn an average of Refineries processed more crude $25,000 a day next year, according to last week, pushing the utilization rate the median of eight shipping analysts back over 90 percent. Gross inputs surveyed by Bloomberg. That’s 12 reached 16.67 million barrels a day. percent lower than they were anticipating The gain was the fifth in seven weeks. before OPEC took a decision on Nov. 30 — Richard Stubbe, Energy Editor to cut collective output by enough to fill four ships a week. Full story on Terminal. Crude imports from Canada rose to the highest level on record of 3.6 million barrels per day. Note that data Companies only goes back to 2010. Glencore and Qatar’s sovereign — Michael Roschnotti, Oil Reporter wealth fund agreed to buy a 10.2-billion After initial gains this morning, the euro ($11 billion) stake in Russia’s gasoline crack spread now turning largest oil producer from the state in a negative on the day. A large increase triumph for President Vladimir Putin over in east coast gasoline inventories is sanctions imposed by the West. The likely the culprit. surprise deal gives the buyers a 19.5 percent stake in Rosneft, which the U.S. — Michael Roschnotti, Oil Reporter and EU have targeted with punitive Refinery runs rose to its highest China’s fuel exports rose to a record measures, and is the biggest foreign levels since September, but still last month as private refiners boosted investment in Russia since the crisis in below 2014 and 2015 levels. overseas shipments amid concern the Ukraine. It also marks a stunning return government would impose new policies — Michael Roschnotti, Oil Reporter to deal-making for Glencore CEO Ivan next year that could limit foreign sales. In related news, stockpiles in Padd Glasenberg a little more than a year after The world’s biggest energy user exported 3 are down 6.91 million barrels, also his company was forced to raise cash 2.85 million tons net oil products in following a normal seasonal pattern from shareholders. Full story on Terminal. November, according to customs data as operators in Texas and Louisiana released today. The nation also imported Chevron said it will reduce spending try to minimize year-end stockpiles 32.35 million tons of crude in November, on oil exploration and other projects for tax purposes. by about 15 percent next year to $19.8 or about 7.9 million barrels a day, the — Richard Stubbe, Energy Editor highest since September and up 16 billion after a multi-year collapse in crude U.S. gasoline exports pushed percent from the previous month. Full prices. Chevron has been shrinking its higher again last week, but we still story on Terminal. worldwide portfolio of oil and natural gas developments and abandoning the haven't seen levels surpass 1 million costliest, high-risk projects to conserve barrels a day since the week that Market Calls cash for dividend payouts. About 59 ended Nov. 4. At 992,000 barrels a Saudi Arabia will get its wish for the percent of the 2017 spending plan will be day last week, we got pretty darn oil market to move into backwardation devoted to crude and gas investments close. by mid-2017, according to Francisco outside the U.S., the company said in a — Laura Blewitt, BFW Oil Reporter Blanch, head of commodity markets statement on Dec. 7. Full story on Terminal.

Demand Oil Buyer's Guide Dec. 8, 2016 3

Demand

China Crude Imports Rise as Refiners Stockpile for Winter Demand By Bloomberg News China Imported 32.35 Million MT of Crude in November China’s crude imports rebounded from a nine-month low as refiners stockpiled the fuel to meet demand ahead of the Lunar New Year. The world’s biggest energy user imported 32.35 million metric tons of crude in November, according to data released by the General Administration of Customs today. That’s about 7.9 million barrels a day, the highest since September and up 16 percent from the previous month. Chinese refiners typically boost crude stockpiles beginning in November to meet fuel demand from people heading to their hometowns before the Lunar New Year holiday, which is celebrated from Jan. 27-Feb. 2. The nation’s commercial official Xinhua news agency. Sun, an analyst with Shanghai-based crude inventories dropped 1.9 percent in “The nation’s oil product demand will commodity researcher ICIS China, said October, according to the China Oil, Gas enter another peak period around the before the release. “Refiners could have & Petrochemicals newsletter run by the Spring Festival in late January," Amy started building inventories."

China’s Drag on Oil Prices That OPEC’s Cuts Can’t Alleviate By Bloomberg News the world’s top oil market, and its median estimate of eight analysts in the One of the biggest engines soaking up insatiable appetite was a significant Bloomberg survey. the world’s oil is starting to sputter. driver for crude’s climb to more than Imports increased as China’s private Growth in crude imports by China, the $100 a barrel in the past decade. refiners, known as teapots, started second largest consumer after the U.S., “China has definitely been a huge getting licenses to import crude on their will probably slow by more than 60 bright spot for crude demand this year, own last year in a government push to percent in 2017, according to a but it won’t be as substantial next year,” boost private investment in energy. Bloomberg survey of analysts including said Michal Meidan, an analyst with Previously, the processors relied on state- FGE and Energy Aspects. Private Energy Aspects. She predicts the owned oil majors including PetroChina refiners that helped boost purchases to nation's imports may increase by 5 and Sinopec for supplies. record levels are expected to be percent to 9 percent next year, compared Increased scrutiny over taxes by constrained by tighter licenses and with 11 percent to 14 percent growth in Chinese authorities could constrain increased scrutiny on their taxes. At the 2016. demand from the private refiners. The same time, the current space available Inbound shipments into China in the government has said it will disqualify for stockpiles may run out. first 11 months of 2016 rose 14 percent license applications or revoke import While OPEC’s deal to curb output may to 7.5 million barrels a day, touching quotas if companies evade tax or falsify help erode a glut and lift prices, Chinese monthly records twice, according to documents. Imports may also slow imports remain key for any sustained customs data. Next year, though, the because port and pipeline infrastructure recovery. It’s the biggest buyer in Asia, Asian nation will boost its purchases by hasn’t developed as fast as oil just 4.8 percent compared with 2016, purchases. according to the

Benchmarks Oil Buyer's Guide Dec. 8, 2016 4

Benchmarks

Spots Futures Based Swaps

PERIOD WTI BRNT WTI/BRNT NYULSD NYULSD/WTI Bal Mo 50.28 53.1 -2.82 161.44 17.53 JAN 17 51.27 53.82 -2.54 163.1 17.23 FEB 17 52.13 54.39 -2.26 164.1 16.79 MAR 17 52.87 54.83 -1.95 164.26 16.11 Bal Qt 50.28 53.1 -2.82 161.44 17.53 Q1 17 52.09 54.35 -2.25 163.82 16.71 Q2 17 53.58 55.39 -1.81 165.55 15.95 Q3 17 54 55.77 -1.77 168.4 16.73 Bal Yr 50.28 53.1 -2.82 161.44 17.53 Cal 17 53.46 55.38 -1.91 167.22 16.77 Cal 18 54.15 56.39 -2.24 172.44 18.28

PERIOD NYULSD/BR NYRB NYRB/WTI NYRBBR RBHO Bal Mo 14.71 150.54 12.95 10.13 -10.9 JAN 17 14.68 151.97 12.55 10.01 -11.13 FEB 17 14.53 154.24 12.65 10.39 -9.87 MAR 17 14.16 173.98 20.2 18.25 9.72 Bal Qt 14.71 150.54 12.95 10.13 -10.9 Q1 17 14.46 160.06 15.13 12.88 -3.76 Q2 17 14.14 174.84 19.85 18.04 9.29 Q3 17 14.96 166.49 15.93 14.16 -1.9 Bal Yr 14.71 150.54 12.95 10.13 -10.9 Cal 17 14.86 163.76 15.32 13.4 -3.46 Cal 18 16.04 165.96 15.55 13.31 -6.48 Source: Bloomberg Source: Bloomberg For live swap prices, click here or run CFVL on Bloomberg For live spot prices, click here or run BOIL on Bloomberg. For crack Spot prices as of end of previous day. Futures as of 7:30 a.m. spreads click here or run CRKS

Bloomberg Briefs: Oil Buyer's Guide

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