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Is U.S. Shale Nearing Collapse?

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Oil Extends Gains On Weaker Dollar

Shale rig

With a weaker dollar in cahoots with ongoing hope spurred on by OPEC murmurs and rumors, crude is ripping higher into the weekend. Hark, here are five things to consider in oil markets today.

1) Petrobras has finally managed to muster a profit after three consecutive quarterly losses. Brazil's state-run oil company managed to make a $118 million profit last quarter, as oil output and exports boosted profits.

Our ClipperData show that total Brazil oil exports through the first half of the year have actually dropped, but exports to its key markets - China, Uruguay, India, U.S. and Spain - have risen over 4 percent year-to-date, and are over 600,000 bpd for June:

(Click to enlarge)

Petrobras has seen debt surge in recent years to close to $140 billion. The company is now on a mission to reduce this, with a $15 billion divestment program in place - already agreeing to sell $4.6 billion of assets in Argentina, Chile and Brazil.

(Click to enlarge)

2) We have had a whole slew of weaker data out of China overnight. Industrial production dropped to +6.0 percent YoY, below last month's 6.2 percent and below consensus of 6.1 percent. Retail sales also missed expectations of +10.5 percent, coming in at +10.2 pecent YoY.

Meanwhile, Chinese fixed asset investment dropped to its lowest level in over 16 years at +8.1 percent. This is down from 9 percent last month, and down for a fourth consecutive month - indicating the waning effects of a credit boom in the first quarter.

This data comes follows ongoing poor trade data earlier in the week as both imports and exports fell more than expected, indicative of both weak domestic and global demand. Imports declined the most since February, and have now declined for 21 consecutive months. Exports have fallen for 12 of the last 13 months. As we know all too well, all paths lead back to energy, hence lower total imports were aided by falling oil imports (hark, lowest since January), while strong petroleum (and steel) exports helped total exports from being even worse.

(Click to enlarge)

3) Continuing the theme of weak data from China, National Bureau of Statistics data out overnight has shown domestic crude output has fallen to the lowest level since October 2011, down 8.1 percent year-on-year. Production has dropped for a fifth straight month to 3.95 million barrels per day, driven by falling investment by China's key producers; capex has been cut by 10 percent this year by the likes of PetroChina and Sinopec. It also shows refinery throughput has dropped 300,000 bpd month-on-month. Coal output has fared even worse than oil: Related: Why Oil Companies Must Look Beyond Oil To Survive

(Click to enlarge)

4) Oman is not a member of OPEC, but produces ~1mn bpd, the majority of which is exported. In response to the latest OPEC jawboning about a potential production freeze, the Omani oil and gas minister has expressed his disappointment at OPEC's inaction thus far to address low oil prices. Further, Mohammad bin Hamd al-Rumhy has said that it will not be participating in the International Energy Forum next month, where production freeze talks are expected to be exhumed on the sidelines of the event.

A lack of desire to be involved in any talks relating to a production freeze (not that it is going to happen, but hey) may also lie with Oman's ambitions to increase oil production to meet domestic demand from new refining capacity coming online.

Al-Ruhmy has not only indicated that Oman will increase production by 70,000 - 90,000 bpd to accommodate the new capacity, but that it will export ~50,000 bpd less, and also look to import more (according to our ClipperData, it has imported three cargoes totaling 1.56mn bbls so far this year - two cargoes of Rasgas condensate from Qatar, one of Murban from UAE). The majority of Oman's domestic production is exported, with the majority of it making its way to China:

(Click to enlarge)

5) We've had the latest numbers on intentionally delayed DUCs from Rystad Energy, and they show how DUC inventory has climbed steadily since mid-last year from 150 to 600 wells last month. While Bakken was initially leading the charge early last year - due to North Dakota's Industrial Commission extending the completion delay allowance from 12 to 24 months - Eagle Ford and Permian have also jumped aboard the train of this trend:

By Matt Smith

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