U.S. Crude Import Growth

U.S. Crude Import Growth

7th October 2016

The onshore rig count increased 1, bringing the total to 501 compared with 763 a year ago. Rigs targeting oil added 3, standing at 428, up 35% (112) since bottoming out the week of May 22.

During the first half of 2016, U.S. crude oil imports increased by 528,000 barrels per day, or 7%, compared to the first half of 2015. This increase reverses a multiyear trend of decreasing U.S. crude oil imports as a result of increasing U.S. shale production.

East Coast crude oil imports, which are reported as imports to Petroleum Administration for Defense District (PADD) 1, increased the most, rising by 244,000 barrels per day (41%) compared with the first half of 2015.

Shipments from Nigeria, Iraq, and Canada contributed the most to the increased imports. Imports from Nigeria, Iraq, and other members of the Organization of the Petroleum Exporting Countries (OPEC) rose by 504,000 barrels per day.

Declining imports from Mexico, which fell 118,000 barrels per day, more than offset the increase in imports from Canada, limiting the overall increase of non-OPEC imports to less than 24,000 barrels per day.

As a result of price, supply, and logistical dynamics, East Coast (PADD 1) crude imports rose by 244,000 barrels per day (41%), nearly three-quarters of which were supplied by Nigeria. Nigerian production actually declined during the first half of 2016 due to elevated supply disruptions. However, falling U.S. shale production and increasing competitiveness for seaborne light sweet crudes into the East Coast more than offset lower production levels, enabling imports from Nigeria to displace crude received from the Midwest shale production, which declined by half, or 200,000 barrels per day. As a result, imports from Nigeria - which fell more than 1 million barrels per day in 2010 to only 7,000 barrels per day during the first half of 2015 -were able to partially return to their former primary market in the East Coast, rising to 186,000 barrels per day during the first half of 2016.

A somewhat bullish report was issued by EIA this week.  During the time when  inventories usually build due to refinery maintenance, crude stocks fell for the 5th consecutive week (a total decrease of 26 million barrels in September) with a material decline in crude production. Overall crude production decreased by 30,000 barrels per day, despite an increase in Alaska production. Production in the lower 48 (excluding Alaska) decreased by 38,000 barrels per day, a large weekly decline that essentially erased the gains made during August of this year.

Sources: EIA Weekly Update and GCA Analysis

The Carrington gas-fired power plant in Manchester, England began commercial operations on September 26, 2016. This 880-megawatt (MW) facility is the U.K.’s first gas-fired power plant commissioned in the past three years. In 2016, natural gas consumption for power generation (power burn) increased considerably in the U.K. as more coal-fired power plants were retired. Power burn increased by 43% in the first nine months of 2016 compared with the same period last year, 37% higher than the three-year (2013–15) average.

U.K. natural gas power burn has generally increased over the past two decades and peaked in 2010. However, power burn declined 47% from 2010 to 2012, following a significant increase in natural gas prices from US $6.56 per million British thermal units (MMBtu) (annual average) in 2010 to US $9.49/MMBtu over the same period in 2012. Natural gas-fired generation remained at about the same level during 2012–15, while the combined share of renewable generation (particularly wind) and net imports increased from 16% to 30% over the same period.

Falling natural gas prices in 2016 made natural gas-fired power plants decidedly more competitive than coal-fired power plants. In May 2016, U.K.’s electricity generated from coal fell to zero on several days for the first time in 100 years. Although coal generation is expected to continue to decline with more power plant closures in the next five years, the recent approval of the 3.3 GW Hinkley Point C nuclear power plant and growth in renewable generation will affect the growth in natural gas-fired electricity generation over the long term.

Weekly Recaps

Drilling Activity

The total number of active onshore rigs increased to 501.  When compared to a November 2014 figure of 1,876 active rigs, the current level is approximately 73% below the 2014 high.

Across the three major unconventional oil basins, the oil rig total decreased to 265 (down 2 last week), with Eagle Ford and Permian both down 1 and Williston flat.

Total U.S. rig count (including the Gulf of Mexico) stands at 524, up 2 last week, with rigs targeting oil up 3. The horizontal rig count increased to 413, up 6 last week.

Oil Price

Oil markets fell following comments from the Russian energy minister that dampened hopes for a broader agreement on production cuts. West Texas Intermediate crude oil climbed above US $50 a barrel for the first time since June 24. The uptick comes after a string of news that may assist in rebalancing the supply-demand dynamics of the commodity.

Brent, the global benchmark for oil, was up $2.75 to US $51.76 a barrel, reflecting a gain of 5.61% on the week.

WTI crude rose $1.75 to US $49.80 a barrel, up 3.64% on the week..

U.S. Supply and Demand

Sources: EIA Weekly Update and GCA analysis

U.S. crude oil refinery inputs averaged 16.0 million barrels per day, with refineries at 88.3% of their operating capacity last week. This is 302,000 barrels per day less than the previous week’s average.

U.S. gasoline demand over the past four weeks was at 9.3 million, up 3.2% from a year ago. Total commercial petroleum inventories decreased by 11.2 million barrels last week.

On the supply side, EIA data indicated that total domestic crude production decreased 30,000 barrels to 8.467 million barrels a day. The total Lower 48 production now stands at 8.005 million barrels per day.

U.S. crude imports averaged about 7.7 million barrels per day last week, a decrease of 125,000 barrels per day from the previous week. Imports have been running at relatively low levels and this has caused the crude oil draws.  Over the last four weeks, crude oil imports averaged 8.0 million barrels per day, ~10.1% above the same four-week period last year.

Crude oil inventories decreased 3.0 million barrels from the previous week but remain at historically high levels. The crude stored at Cushing (the main price point for WTI) saw an increase of 0.6 million barrels; total storage is 62.7 million barrels (~70% utilization).

Authors

U.S. Crude Import Growth

P Kevin Galvin

Principal Advisor, Field Development Planning - kevin.galvin@gaffney-cline.com
U.S. Crude Import Growth

Signup to receive our latest articles

We're here to help