Last week the US fuel markets saw spikes in exports and changes to crude inventories as it recovers from hurricane related disruptions. Kurds in Iraq began to move towards independence from their Iraqi counterparts. Meanwhile, a new biodiesel pant is being built in Kansas, while the EPA considers cuts in this space. Vehicle manufacturers continue to expand in the electric truck industry while oil prices are on the rise.
The US Hits a Record for Crude Oil Exports
The EIA reported a record high for US oil exports at 1.491 million barrels per day for the week ending 9/22 – 14% higher than the previous record set in May 2017. The growth in crude oil exports have been supported by growing US oil production and the extended production quotas instituted by OPEC through March 2018, but it is also important to remember the context behind this statistic.
First, the US only recently lifted a 40-year-old oil export ban in January 2016, which creates a limited sample size to compare weekly exports. Second, the late-month surge comes on the heels of significantly reduced US oil exports to start September due to disruptions of marine terminals by Hurricane Harvey. Harvey’s impact on exports continued well beyond the port closures, as idled refineries lowered the ability to process crude in early September and lowered the price point of WTI and other North American crudes compared to foreign oil prices – making US oil more attractive in the global marketplace. The Brent-to-WTI crude differential has remained above $4/barrel since mid-August – a level that had not been achieved since the lifting of the export ban – which will continue to create favorable conditions for exports in the near future.
A Vote for Kurdish Independence Brings Concern over Oil Market Stability
Several million Kurds in Iraq have taken a symbolic step toward achieving a dream deferred since the end of World War I: establishing a homeland of their own.
Kurds in Northern Iraq voted overwhelmingly in favor to pursue independence in a non-binding referendum this past Monday. The independence initiative has been highly divisive, with many groups speaking out against referendum – including the Iraqi government, Turkey, the United Nations, and the US. Specific to the oil market, this region – known unofficially as Kurdistan – contains roughly 20% of Iraq’s oil resources. The uncertainty around Iraq’s ability to keep control of these resources or how an independent Kurdistan would set its oil policy leads many in the market to be concerned.
The timeline towards independence is unclear, as is the impending actions of the Iraqi government and other countries in the region. The Breakthrough Advisor team will continue to watch the situation in the months to come, as it could affect our oil forecast model – both through a change to supply-demand fundamentals and increased geopolitical risk.
In Other News
Cargill has unveiled plans to build a $90 million biodiesel plant in Wichita, Kansas, U.S. Construction on the 42,000-square-foot facility will begin in December, with plans to open the plant in January 2019.
Navistar International Corp. and partner Volkswagen Truck & Bus have announced plans to jointly develop an all-electric, medium-duty vehicle for the U.S. and Canadian markets. (Class 6/7)
Federal regulators could reduce US renewable fuel blending mandates by hundreds of millions of gallons on concerns that import tariffs will reduce supplies or increase the cost of biodiesel.
U.S. crude prices rose 9.4% this month—their best month since April 2016—supported by renewed faith in the efforts of Organization of the Petroleum Exporting Countries and other producers to alleviate a global supply glut and concerns that the recent Kurdish referendum could hit supply.