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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Oil Dips – Is This The End Of The OPEC Rally?

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The crude complex is finally taking a breather after the recent OPEC-sponsored rally. We're now faced with the juxtapositioning of rising OPEC output versus promised cuts; something which could well become a recurring theme over the coming months. Weekly inventories beckon tomorrow, but hark, here are five things to consider in oil markets today:

1) ClipperData's Oracle of Oil, Abudi Zein, is the author of this must-read piece on RBN Energy today, about how we saw the OPEC / Russia production deal playing out in our ClipperData.

Without spoiling too much, he highlights how we saw key producers ramping up their exports in October - from Saudi to Kuwait to Iran to Russia - 'like sprinters leaning into the tape at the finish line' . As Iran's exports ramped up to peak in October, we correspondingly saw a draw down in floating storage. Hark, Iranian exports:

(Click to enlarge)

2) As we know all too well. All paths lead back to energy. Hence, as oil prices are starting to show consistent year-over-year gains, this is filtering through into inflation. As the chart below illustrates, OECD inflation has increased for three consecutive months, and is now at its highest level in almost two years.

The 34 members of the OECD saw consumer prices rise 1.4 percent YoY in October. Across the world's 20 largest economies - which account for 85 percent of global economic output - inflation rose to 2.3 percent.

(Click to enlarge)

3) Today we get the final monthly Short Term Energy Outlook of the year from the EIA, although we have to wait until next Tuesday (13th) to get IEA's Oil Market Report for December. OPEC completes the trifecta a day after (Wednesday 14th). Nonetheless, we are already starting to get estimates coming through for OPEC production in November. Related: IEA Chief Expects OPEC Deal To Work

A Reuters survey pegs OPEC production for November at 34.19 million bpd, up by 11 percent, or 370,000 bpd. Bloomberg sees production at a similar level (34.16 million bpd), with increases from Angola, Libya and Nigeria. We see in our ClipperData that OPEC exports ticked slightly lower last month after launching a moonshot in October (in millions of barrels per day):

(Click to enlarge)

4) While we actually saw total Saudi oil export loadings increase last month compared to October levels, our ClipperData show that deliveries to the US in November dropped to the lowest level since early 2015, as flows of Saudi grades were particularly low to the West Coast.

(Click to enlarge)

5) Finally, the chart below (from this piece by @julieverhage) shows that the yield on the High Yield Energy Index has now dropped to 6.73 percent, the lowest level since late 2014 (when oil prices were $80/bbl), as confidence in the oil patch returns.

Yields have persistently dropped since February - corresponding with the low for oil prices - as concerns of capitulation have eased, spurred on by both a rising oil price, and an intrepid search for yield.

(Click to enlarge)

By Matt Smith

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