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Oil Futures: Who Is Trading What?

A commission tracking crude oil…

Oil Crashes As Crippled Pound Drags Down Equities, Bonds

Shale Gas Well

As the oil market returns to full strength after the Independence Day break, crude prices are charging lower, egged on by a strengthening dollar (well, weakness elsewhere – pound, I’m looking at you). As economic concerns rise again, crude is looking downbeat.

1) There has been good news out of Libya over the weekend, with its National Oil Corporation (NOC) agreeing to merge with its rival in the east of the country. Yet while the decision to unify the country’s oil company under a single management structure is a positive development, we may not see a material ramp up in production in the near-term, given that various different factions and militias control various pipelines and oil fields.

Due to sustained damage of infrastructure and a lack of maintenance, some estimates suggest it would take years to get production back to 800,000 barrels per day. Our ClipperData show that Libya exported ~230,000 bpd of crude in June; monthly exports have not risen above 300,000 bpd since the first half of last year. Libya…it’s complicated:

(Click to enlarge)

2) On the economic data front, the drumbeat builds towards another Nonfarm Friday (aka official US unemployment data); in the meantime we will get a sprinkling of data from across the globe. Chinese services data (via Caixin) was better than expected (52.7), while the Eurozone services PMI was also above consensus (52.8). Related: Fresh Niger Delta Attacks Could Send Oil Prices Up

Eurozone tales of retail sales were in line, at +0.4 percent MoM and +1.6 percent YoY, while we’ve had rhetoric from the Bank of England’s Governor Mark Carney, which has served to whoop-bang-wallop the not-so great British pound down to new 31-year lows (you can see the history of GBP annotated by hit songs here via @OilSheppard).

3) Seventeen of the 30 largest U.S. shale firms increased their hedges in the first half of the year, as producers have locked in prices for future production amid the recent oil rally. The 17 companies have hedged some 55 million barrels of future production; not only does hedging give producers financial stability via price certainty, it also incentivizes them to boost production if prices are higher than their hedges.

4) We’ve recently discussed the fragility of the Venezuelan economy here a number of times; the chart below is a great visual of how oil-dependent its economy is. As oil prices have dropped, so has the price of Venezuela’s debt. Nonetheless, the government remains focused on servicing its debt and not defaulting.

Venezuela needs to make $1.5 billion in foreign debt payments in the second half of this year; including state-run oil company PDVSA’s debt, this number surges to $5.8 billion. Its economy contracted by 7.5 percent last year, and is expected to shrink at an even greater pace this year. All the while, its foreign exchange reserves have been whittled down to just $12 billion. Only a sharp increase in oil prices can save its economy it would seem. (Good luck with that). Related: Abu Dhabi To Create $135 Billion Oil Giant

(Click to enlarge)

5) Finally, the chart below shows the top 20 institutions in the U.S. in terms of renewable electricity consumption. While Google is leading the charge (by a long shot), the Pentagon is in second place – and has committed to acquiring up to 3 gigawatts of renewable capacity by 2025.

Google accounts for a quarter of the total renewable capacity built by 350 U.S. institutions, while the technology sector as a whole is a recurring theme in the top 20 institutions:

(Click to enlarge)

By Matt Smith

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  • Karthik Srinivasan on July 05 2016 said:
    Not sure I understand your 3rd point. What matters is cost and liquidity. While hedging adds to stability, many producers have total costs (variable+replacement) well above current prices or generate returns that don't warrant drilling at current prices. As a result, hedges in isolation won't spur a big production boost. Most operators that I'm familiar with won't add a meaningful number of rigs until oil heads above $60 for a sustained period. Either that has to happen or the banks have to boost borrowing bases since the high yield markets are inaccessible.

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