The Fuse

ClipperData’s Matt Smith on Market Transparency and Oil Trade Flows

by Leslie Hayward and Matt Piotrowski | August 01, 2016

Matt Smith is Director of Commodity Research at ClipperData, a company that tracks global cargo flows of crude and products. He speaks to The Fuse about data transparency, trade flows, and recent price trends.

What is unique about ClipperData? What type of market intelligence do you provide to the industry?

We’re tracking over 44 million barrels per day of crude loadings, and about the same volume arriving at ports each day as well. We use AIS, the satellite tracking system, along with Bayesian probability models and information from port agents via partnerships with Inchscape and Datamyne to track global crude flows. We are not just tracking the vessels, but the underlying cargo on a global basis, which gives our clients the exact crude grades and product types being shipped on tankers. We’re following vessels from the individual dock all the way to the discharge facility—we pride ourselves on knowing the cargo.

It’s the level of granularity that market players want to see. The crude grade data and the timeliness of the data are something the market has never really seen before in real time, so it creates a real competitive advantage. The Bayesian model allows us to assign probabilities to each vessel to project where each cargo is headed once they leave port.

The oil markets have been known for being opaque, with robust real-time data historically hard to come by. But now, there’s been an explosion of information, so much that we’re almost oversaturated.

One can read a mainstream story saying one thing but real-time data tells a different story. What you see in the data may not be immediately reflected in benchmark prices.

We’ll never fully discover everything that is going on in the market, but the increase in the amount of data does give more insight. Information sharing is an overall positive, but it can add to uncertainty because no one can ever have a complete picture. At the same time, one can read a mainstream story saying one thing but real-time data tells a different story. What you see in the data may not be immediately reflected in benchmark prices. But it will be seen in spreads for certain grades, and that’s where granular data has its importance. There is also the case with the futures markets where news headlines for non-oil events can move crude prices more than the underlying fundamentals. Some days it is nearly impossible to predict how the futures market is going to move.

ClipperData closely follows the products markets, too. What have you seen regarding shifts in trade flows for gasoline and diesel?

Gasoline cargoes waiting offshore at New York Harbor are becoming a more common occurrence.

We’re now seeing a gasoline glut. A lot of gasoline has made its way from Europe to the U.S. East Coast in the second quarter of this year. The crude overhang has moved to an overhang of products. Gasoline cargoes waiting offshore at New York Harbor are becoming a more common occurrence, and we have even seen a number of vessels redirected in the last month. In an unusual development, we were tracking a cargo headed to the U.S. East Coast that got diverted and was finally discharged on the U.S. West Coast instead, after moving through the Panama Canal. That is a reflection of how oversupplied the East Coast has become. The vessel had to find a home somewhere else. A number of other cargoes were diverted too. One went to storage in the Caribbean, for example. The economics of moving gasoline from Europe to the U.S. was justified, and still is to a certain extent. But even though boilerplate capacity suggests the East Coast still has more room in storage, some cargoes still couldn’t find a home at New York Harbor.

Floating storage has returned as a major story in the oil markets, but not for the same reason it was in 2010. What is occurring in floating storage plays?

We are tracking global floating storage on a daily basis across all the key areas—Singapore, China, the Middle East, Europe, Latin America, and the U.S. Floating storage hasn’t been incentivized by the contango—it’s not wide enough to justify the economics. The high floating storage occurring now is the result of cargoes not being able to unload due to the oversupply. This development is a significantly bearish signal. Back in 2010, the wide contango incentivized floating storage, but that’s not the case now. The U.S. was the hot spot late last year with floating storage, when we were seeing crude build on tankers on the Gulf Coast, up to nearly 40 million barrels. Even though it’s been drawn down since, there’s always typically 12—15 million barrels of floating storage in the U.S., simply because of how much it consumes on a daily basis.

What other areas are key points for floating storage now?

China has stockpiled about 150 million barrels so far this year, nearly 1 million barrels per day, but now its crude imports are starting to slow.

Our concern in recent months has been China. The difference between the country’s production and crude imports versus its refinery runs has been so disparate. It appears that China has stockpiled about 150 million barrels so far this year, nearly 1 million barrels per day. We are now seeing their crude imports starting to slow, an indication that their stockpiling may be complete. Another bearish signal is floating storage in Singapore. We’ve seen volumes in recent weeks close to records. Singapore is used like a parking lot, so many of the cargoes there probably don’t have buyers. Floating storage at Qingdao in China also helps to affirm our bearish fears. Qingdao is the key port for teapot refiners, and strong demand in recent months has meant it has consistently been backed up. This build-up of floating storage has dropped dramatically in the last month, however, indicating less appetite for cargoes from teapot refiners.

Is there anything bullish in the market right now?

Venezuela is a big concern from a bullish perspective. It produces heavy, bitumen crude. Venezuelans need to purchase light oil or naphtha to mix with the heavy crude to be able to export it. They stopped purchasing Nigerian crude in March, and have been increasing volumes of U.S. light crude oil and naphtha since. The issue with Nigeria could have to do with credit. In recent months, we have also seen U.S. vessels waiting offshore Curacao, which could also be related to potential credit issues. We are watching these flows very carefully; if the Venezuelans are unable purchase the diluent for their heavy crude, it means their export volumes will dry up.

Iranians loadings have dropped off in the last couple of months. The drop-off in July may relate to lesser condensate demand from South Korea and lower European needs. Floating storage hasn’t dropped off though. But in the case of Iran, export loadings really ramped up after sanctions were lifted, much faster than many expected, hitting 2.6 mbd in May. Now the outlook is a bit more uncertain with the recent drop-off, holding well below 2 mbd in July.

The second quarter was dominated by production outages. How did the market compensate for the lost output?

When Canadian crude went out because of the wildfires, we could see more Latin American crude being pulled into the U.S. Gulf—Venezuelan, Colombian, Mexican. That heavy crude was sent to the U.S. to make up for what was lost in Canada. With Nigeria, while some crude streams such as Bonny Light and Forcados went offline due to force majeure, other streams actually increased, compensating for what was lost. So we never really saw much of a material drop in exports from Nigeria. Nigeria has also been drawing down its storage to keep export volumes up—but storage is now very low. This is a great example of how proprietary data gives you a competitive advantage. If you’re trading WTI, for example, futures prices may spike on headlines about Nigeria. But if you are able to see the actual underlying loadings, you can either affirm or dismiss this headline and position yourself accordingly.

What other big trends have you seen in trade flows?

When the WTI-Brent spread narrowed, like it has in the past few months, new grades—such as those from Congo and Egypt—have come into the U.S. But when it widens, we’ve seen U.S. producers look for opportunities to export.

The lifting of the U.S. export ban has also affected flows, but what we’ve seen has been somewhat counterintuitive at times. For example, we have seen a drop-off in flows from the U.S. to Canada. It makes sense when you put it in the context of changing spreads, an increase in Canadian production of Hibernia, and the reversal of the 9B pipeline. The law of unintended consequences is alive and kicking in the oil markets. There are things you never expect to see, so that’s why real-time data has become so important. Right now, we’re seeing opportunities with shifts in the Brent-WTI spread. When that spread narrowed, like it has in the past few months, new grades—such as those from Congo and Egypt—have come into the U.S. But when it widens, we’ve seen the door slam shut on those rare imports and U.S. producers look for opportunities to export. The U.S. is exporting a lot of condensate to Europe—to destinations such as the Netherlands, France, Spain, and Italy. Some crude cargoes have made it to China and Japan, but there hasn’t been much penetration into Asia among American producers, given the economics involved. There have been some cases of “try before you buy” from Asian refiners, who have purchased U.S. crude for testing purposes. In general, we’re seeing U.S. exports getting much more creative. The economics don’t work to send a Suezmax across to Asia. So what is happening is a few parcels are being collected in the Caribbean, and added to other grades such as Mexican Maya, to send on to Asia in a VLCC. Cargoes to Asia are sporadic and will likely remain so.