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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 Prices Fall On Unexpected EIA Barrel Build

Oil Prices Fall On Unexpected EIA Barrel Build

One hundred and sixteen years after the birth of Woody Woodpecker creator and animator Walter Lantz, and WTI crude oil is knocking on the door of $45 – and knocking on wood that U.S. production is wilting. Here are six things to consider about the oil market on this final Wednesday in April:

1) Today is set to be dominated by a game of two halves; inventories this morning, and Federal Reserve rumblings this afternoon. While the API inventory report points to a draw to crude stocks (h/t lower imports), expectations of dovish rhetoric from the Fed is putting downward pressure on the dollar. Hence, crude is once again pushing on to new highs for the year. The bullish sentiment for oil however did not last long after the DOE surprised by contradicting the API and reporting a significant build in U.S. crude stocks.

2) A piece today talking about how Saudi is making ground on an Asian ‘oil market turf war‘ by selling a spot cargo to a Chinese teapot refiner sent me scurrying off into our ClipperData to see if this an emerging trend. It definitely is.

Saudi Arabian crude oil exports are up over 3.5 percent in Q1 compared to last year’s average. Last year, some 61 percent of Saudi Arabia’s crude oil exports went into Asia; so far this year, that percentage is up to 65 percent. China, on average, accounts for 14 percent of Saudi Arabian crude exports – although this percentage spiked in February to 18 percent when Saudi import volumes reached a record (as Iranian sanctions were lifted, interesting timing…). Related: Saudi Arabia Releases Ambitious Plan To Diversify Economy

What is also fascinating about Saudi Arabian exports is that the U.S. remains the leading recipient – with imports last month reaching an eleven-month high at 1.28 million barrels per day. In fact, U.S. import volumes from Saudi Arabia are up 9 percent in the first quarter compared to last year’s average.

3) The graphic below highlights how badly the drop in oil prices is hurting certain states, as rising unemployment in states such as Texas, Louisiana and Oklahoma is causing an increase in loan delinquencies. Related: It Isn’t Just ISIS that Is Destabilizing Iraq

Widespread job losses in the oil patch are estimated at 119,600 since September 2014, or 22 percent of the total, causing delinquency rates in oil-rich states to rise above the national average.

According to the governor’s office, oil, gas and mining industries account for ~70 percent of Wyoming’s revenue, and oil and gas jobs in the state are down 25 percent from a year ago.

(Click to enlarge)

4) In terms of economic data, things are a little bit light; we’ve had UK Q1 GDP, which was revised slightly lower to +0.4 percent compared to the prior reading, at +2.1 percent on a year-on-year basis. Eurozone money supply, a leading indicator of inflation, has continued to hold at 5 percent, where it has hovered around for the last 12 months (aka benign inflation). A lack of stronger consumer spending was also a theme in Eurozone private sector loans, which grew at a lesser pace than expected. US pending home sales were above consensus at +1.4 percent MoM in March.

5) Total is the latest oil major to report quarterly earnings. It too followed the same script as BP’s results yesterday, in that its quarterly profit beat estimates, while being considerably lower than last year. Net profit fell to $1.61 billion, down from $2.66 billion a year earlier.

It too has a surgical focus on cost-cutting; it squeezed the technical cost of extracting oil in 2015 down to $23 a barrel, the lowest among the majors, while planning to cut capex to below $19 billion – down from $23 billion last year. Related: The Real Reason Saudi Arabia Killed Doha

6) Last week we discussed how high yield energy bonds are seeing their yields normalizing as the fear of default recedes amid cost-cutting, rising oil prices, and the quiet passing of another debt redetermination period. This confidence is no better exemplified than in the appetite for new share issued by the oil and gas sector.

Last year we saw U.S. oil and gas companies raise $18 billion from investors. We are not a third of the way through this year, and companies have already raised over $10 billion. As the chart below illustrates, investors are encouraged to jump into these new tranches; after all, their performance over the last four quarters has been impressive.

(Click to enlarge)

By Matt Smith

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  • Knave Dave on April 27 2016 said:
    Hard to see how the text of this article justifies the headline. Article says that bullish sentiment didn't last long, but data in the righthand sidebar on the same day shows oil prices climbing in a quite bullish fashion. Must have been a very short mid-morning blip down; but the article doesn't say how much of a fall the fall even was nor even how much the oil build was. One would thing -- that being the headline -- those topics would have merited more than a single sentence very general statement.
  • mchentrp on April 27 2016 said:
    Wondered the same thing. The daily chart doesn't seem to warrant this headline either. While being cautiously optimistic, it's hard to justify the democrats' and socialists' desire to tank the industry when so far it's cost over 100,000 good and well-paying jobs. Maybe they won't be happy until the industry is totally wiped out and all those well jobs are gone with the results that we can all get out of the business and start working for Wal Mart or Home Depot or some other large chain that hold employees down to less than 30 hours a week.

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