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Oil Markets Roiled as Harvey Hits U.S. Petroleum Industry
All eyes are on Harvey this week, as the storm affects the nation’s hub of production and oil activity – Texas. The most powerful storm to hit Texas in 50 years, Harvey has taken nearly 30% of the Gulf Coast’s refining capacity offline, while also temporarily shutting in crude production. That equates to 2 million barrels (84 million gallons) of refined products not entering the market.
Forget OPEC, China Controls Oil Prices
With most of the fundamental news in the market related to OPEC and U.S. production, one overlooked country contributing to global supply/demand balance is China. As China fills their Strategic Petroleum Reserve, their demand has been growing rapidly. If China decides their reserves are full enough, a scenario that is highly likely to occur over the next year, their demand growth could decelerate, throwing the market back into a supply glut.
North American Midstream Strategy in a Time of Uncertainty
The midstream industry, which includes transportation between crude producers and refineries, is struggling to define its strategy for the coming years. While rising U.S. production has increased throughputs on pipelines, there are three threats on the horizon. First, stranded assets (ie, a pipeline to a basin that is no longer economical) require more strategic decisions about assets in the future. Second, favorable contracts with take-or-pay clauses are increasingly coming up for renewal, putting cash flows in jeopardy as shippers will likely opt for lower contracted volumes. Finally, private equity firms are entering the midstream space, offering shorter-term deals and changing industry dynamics.
OPEC/Non-OPEC monitoring committee says oil cuts could be extended
While markets are moving in the right direction, the OPEC monitoring committee says that an extension of production cuts could be extended beyond March 2018. We won’t know for a while though – a decision on an extension likely won’t be reached until OPEC’s November meeting. Once again, OPEC has conveniently left ample time for markets to speculate and bid up the market ahead of their decision.