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AMERICAN OIL: MORE DOMESTIC PRODUCTION, MORE EXPORTS

US President Trump may be divisive but (as he noted during Thursday’s press conference) he is honouring his campaign promises, which lent optimism to US stock markets.


Trump has already indicated (like many presidents before him) that he aims to curb America’s dependence on foreign crude imports. On January 20, Trump stated he is “committed to achieving energy independence from the OPEC cartel and any nations hostile to our interests,” by exploiting “vast untapped domestic energy reserves”. The US imported about 3m bpd a day from OPEC last year, of which around 1m bpd came from Saudi Arabia, Bloomberg reports.
The US saw nearly 10% more waterborne imports in 2016 than the year before, due to US refiners taking advantage of ultra-low crude prices, according to commodity research firm ClipperData. Tankers carrying crude to the US are likely to reduce this year as OPEC imports decrease, and US production is expected to make up the shortfall, the consultancy said.

US crude imports for last week averaged 8.5m bbl, down 881,000 bpd from a week earlier, US EIA data says. However, over the past four weeks, imports have climbed 9.9% compared to the same period last year.

Investors remain optimistic about the Trump presidency, as demonstrated by surging stock market indices. The Dow Jones Industrial Average (DJIA) scored its sixth consecutive record high yesterday. The gains have been spurred by the improving US economy, a strong fourth-quarter earnings season and Trump’s promises to cut corporate taxes and reduce financial regulations. To sustain this upturn, Trump needs to demonstrate he’s making progress in keeping these promises. In spite of the general verve of US stock markets, energy stocks are wavering due to record-high US crude stockpiles. Yesterday, the S&P 500 index edged slightly lower, having risen 5% since 2017 began. The DJIA has risen 4% since January 1.

Oil prices have seen a slight fall over the past week as US crude inventories reached their highest ever level of 518m bbl, according to data from the US Energy Information Administration (EIA). Stockpiles have risen due to a number of factors, including strong oil imports, higher production from US shale plays and reduced demand from refiners.

Nevertheless, crude prices are a lot healthier than they were a year ago, which is helping boost US crude exports. January’s exports averaged 630,000 bpd, up 7% from a month earlier, according to the US EIA. Exports could reach 900,000 bpd during February, due to larger cargoes and reduced crude demand from domestic refiners ahead of their maintenance season.

Thursday saw Phillips 66 book two suezmaxes in the spot market for trips from the US Gulf heading east. Last week, BP reportedly fixed the VLCC Olympic Luck for a voyage from the US Gulf to Singapore, following another VLCC booked by Trafigura on January 25 for the same trip.

Usually one VLCC per month has made it way from America to Asia since Obama repealed the ban on US crude exports. Around one-third of American crude exports are bound for Canada, with the rest (usually) heading to Asia.

Charterers exporting US oil, however, are still restricted by draft at American ports and usually have to opt for aframax-size vessels. President Trump has promised to upgrade America’s aging infrastructure, but this promise does not seem to have extended to the nation’s ports (yet?). Given that vessels larger than suezmax size have an extremely limited number of ports at which to load and discharge, infrastructural constraints will hold back US crude exports in the short to medium term, especially during these relatively early days of the market.

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