For the first few weeks of 2020, the focus in the oil market has been on geopolitics in the Middle East and concerns about the coronavirus outbreak.
Both stories have major implications for oil supply and demand, respectively.
The headlines have moved prices for oil futures, but the actual impact on the physical market has so far been limited.
Let’s focus, instead, on a story in the physical market involving the movement of molecules.
What will 2020 bring in terms of US oil production and exports?
After years of explosive growth, the outlook for the Permian Basin -- the epicenter of the shale revolution -- calls for even more production, yet the pace is likely to slow.
The destination for many of these barrels will be abroad. The ongoing construction of storage tanks and deepwater ports follows the completion of major pipelines last year.
The significance of this supply chain linking the Permian Basin to the Gulf Coast cannot be overstated for oil traders.
With this in mind, we recently began to provide clients with a near-real time pulse on crude inventories in this region.
We now release inventory measurements for six locations in Texas every Monday at 2pm EST covering the week prior.
The sites are located in the Permian Basin:
And along the Gulf Coast:
Some of these sites were added in Q4 2019 as part of our US expansion. We discussed the expansion in a previous blog.
This is ahead of the weekly government statistics released every Wednesday at 10:30 AM EST (except for holidays) by the Energy Information Administration (EIA).
Unlike the EIA weekly inventory report, which comes from a survey, our data is based on actual readings. We use radar satellite imagery to calculate the amount of oil held in floating-top tanks.
Another difference is the level of detail. EIA data shows US inventories on a regional level.
The only exception is inventory data for Cushing, Oklahoma -- a major storage hub and delivery point for the NYMEX WTI futures contract.
We also provide clients with a Cushing inventory measurement every Monday at 9:30 AM EST ahead of EIA’s Wednesday release.
In a White Paper, we provided some hypothetical trading scenarios to illustrate the value of Monday Cushing data. Click here for more.
The US is broken into five areas called PADDs. Here is map. Texas, in addition to five other states, fall within PADD 3, making it the largest and (arguably) most important district.
We measure inventories on a tank-by-tank basis, which is how clients can receive the data.
Not every trader or analyst needs that level of granularity, but anyone looking to gain insights cannot rely on the data aggregated at the PADD-level.
It’s the dynamics within PADD 3 that determine the prices spreads. There’s no better example than Midland crude, which is trading at a surplus to Cushing since late 2019, a far cry from the discount of almost $18 a barrel a year earlier.
Price data: CME Group
Why the turnaround? New pipelines added takeaway capacity.
Attention shifted to Gulf Coast ports and whether infrastructure could be built fast enough to move the additional supply onto ships. With one bottleneck gone, could another one be next?
There’s still lots of work underway, but the prognosis so far is good. Take Corpus Christi where almost 5 million barrels of storage capacity came online last year.
The result? Exports there are booming, hitting a weekly record of 1.59 million bpd in late December, overtaking Houston in terms of export volumes.
Construction crews are building storage tanks capable of holding another 18 million barrels of capacity around Corpus.
This is good news for US shale producers, helping the Permian continue to grow.
The EIA forecasts Permian crude production to increase by 800,000 barrels per day (bpd) in 2020 and 400,000 bpd in 2021.
Permian crude production averaged 4.7 million bpd January 2020, up from 3.8 million bpd January 2019, according to EIA estimates.
Not everyone agrees with the EIA’s assessments. What do you think? Will the shale revolution stay alive? Or are its glory days over?
And if you’re interested in a free evaluation of our data, sign up here.