We're watching three developing situations, in three different, major, oil-producing regions, that are hitting global supply of crude oil in a variety of ways. Each could impact prices in the near-, medium- and potentially even the long-term:
1. Houston Shipping Channel Closure
The closure of the Houston shipping channel after a fire at a chemical storage facility that released toxic chemicals into the air is causing ongoing delays and hurting crude oil imports and refinery runs in the area. The incident also created runoff that flowed into the shipping channel, which is why it had to be closed for several days while the chemical runoff was removed.
This waterway is crucial to many of the region’s petrochemical plants and refineries that process crude oil: it's used by about 42 tankers a day. And although the channel has now been reopened, the process of moving ships through has been slow because each ship has to be checked for chemical residue and cleaned if necessary.
These delays are starting to impact refinery runs because the plants can't get enough crude oil. For example, the Shell (NYSE:RDSa) refinery in Deer Park has already said it may shut down over the weekend if it doesn't receive new crude oil shipments soon. This is a refinery that processes 340,000 barrels of crude oil per day.
The incident has also affected crude oil imports to the United States and exports of U.S. crude oil. As well, traders should be aware that these issues could be reflected in next week’s EIA report and into the following week as delays are expected to continue for another three to five days.
2. Oil Production in Kazakhstan Taking a Hit
This central Asian oil producer is a participant in the OPEC/non-OPEC cooperation agreement, but in the past it has frequently failed to comply with its promised production cuts. This is partially due to commitments Kazakhstan has with oil companies, like Total (NYSE:TOT), that developed its giant Kashagan oil field.
At the most recent meeting of the Joint Ministerial Monitoring Committee (JMMC) in Azerbaijan, Kazakhstan said that it would decrease production so that its average oil production from January through June would meet its quota. This would be achieved by shutting down most of the production at Kashagan for maintenance, starting April and lasting halfway through June.
Now, we are learning that Kazakhstan’s oil output has already decreased. This may be due to a fire at a well in the Kalamkas oilfield. According to reports by Bloomberg, Kazakhstan has only produced 1.757 million bpd in the second half of March. It was producing 1.884 million bpd for the first two weeks of the month.
3. Power Cuts in Venezuela
The power outages causing chaos in Venezuela’s capital city of Caracas are also having a major impact on the country’s oil industry. According to Reuters, four of the crude upgraders are completely shutdown: these upgraders are used to turn its very sludgy oil into a substance that can move through pipelines and be loaded onto ships.
Normally, these four upgraders can process as much as 700,000 barrels per day, but Venezuela has not loaded any oil shipments since March 24. While U.S. sanctions significantly curtailed Venezuela’s oil exports, India and China have continued to receive oil from Venezuela. It's worth noting however, that India argues the crude oil being imported by Reliance Industries (NS:RELI) was from a deal agreed upon prior to the sanctions, indicating the country is likely to refrain from future purchases.
Venezuela’s oil exports have been hovering around 1 million barrels per day. If they are halted entirely due to the electricity outages, oil prices will rise. The heavy crude oil that Venezuela supplies is relatively less common on the market, so the further loss of Venezuela oil may be amplified, most noticeably in the Brent benchmark.