The Commodities Feed: US oil exports surge

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Despite a number of supportive factors in the market, ICE Brent still managed to settle marginally lower yesterday. Clearly, demand concerns are outweighing supply risks at the moment. According to Bloomberg, Russian oil output averaged 10.11MMbbls/d between 1-19 April, which is down from 11.01MMbbls/d in March. Given the large amount of self-sanctioning we are seeing with Russian oil, it is likely that output will only decline further as term contracts expire. Germany’s foreign minister has said that Germany will stop importing Russian oil by the end of this year, with natural gas to follow soon after, according to Reuters. Though the German finance minister has said it will take some time for Germany to wean itself off Russian oil & gas. Comments from both ministers suggest that we can probably rule out the EU putting an immediate ban in place against Russian oil. More likely will be a gradual phasing out of Russian oil, much like we are seeing with coal. A gradual phasing out would give time for trade flows to adjust in a more orderly fashion and so the impact on price would be more limited compared to an immediate ban.

EIA weekly numbers were constructive with US commercial crude oil inventories declining by 8.02MMbbls over the last week, which would be the largest weekly decline in crude inventories since January 2021. Factoring in SPR releases, total US crude oil inventories declined by 12.72MMbbls over the week. The decline was largely driven by crude oil exports, which averaged 4.27MMbbls/d, up 2.090MMbbls/d WoW.  In fact, total oil and refined product exports hit a record level of 10.6MMbbls/d, exceeding the previous record of 10.13MMbbls/d seen in late 2019. This saw net exports of oil and product grow to more than 2.9MMbbls/d last week, which is also a record. Given the structural changes we are seeing in the global oil market regarding Russian supply, along with the expected growth in US crude oil output, we would expect that the US becomes an even larger net exporter of oil and products in the months and years ahead.

The EIA report offered further support to middle distillates. US distillate fuel oil stocks fell by 2.66MMbbls over the week, leaving inventories at 108.74MMbbls. This leaves distillate stocks at the lowest level since 2008. This is a trend that we are seeing across different regions, whether it is Europe or Asia. We recently looked into what is driving this tightness in the market and given the lower export flows we are seeing from China along with plenty of supply risks in Russian gasoil exports, we expect that middle distillates will remain well supported. Middle distillate cracks need to stay strong in order to ensure that refiners maximize their middle distillate yields.

US natural gas prices have come under pressure, falling more than 12% since Monday. This is after having traded to multi-year highs earlier in the week. As we pointed out earlier this week, it was difficult to justify Henry Hub trading at these elevated levels. Whilst inventories are seasonally below average, we are basically at the end of the heating season and expect to see continued production growth in the months ahead. In addition, the strength in the European and Asian markets will have a limited impact on US prices given that US LNG export terminals are operating close to capacity.