Forty two years to the day after Erno Rubik invented the Rubik’s cube, and the oil market is looking puzzled. As the fear of a potentially hugely huge 0.25 percent U.S. interest rate hike in June reverberates around the world, a firming US dollar has greased the wheels for an oil sell-off today. Hark, here are five things to consider in the oil market:
1) Venezuela is offering its crude at its biggest discount since 2008 as it scrambles for revenue and battles for market share. The discount of a basket of Venezuelan oil versus WTI is now more than $12/bbl, and is averaging a discount of $8.44/bbl so far this year. While Venezuela’s heavier crude should be at a discount to WTI’s higher quality, light sweet crude, the discount of $3.78/bbl in 2015 and $3.73/bbl in 2014 seems closer to fair value than the current discount.
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2) Following on from this point we can see in our ClipperData that Venezuelan crude loadings were down ~9 percent in Q1 versus the same period last year – a direct response to lower production. Crude oil loadings last month, however, were at their highest since last October, amid planned and unplanned refinery outages. Related: Who Will Benefit From The Electrification Of Transport?
This has meant lower domestic crude demand, meaning more available for exportation. Loadings at the Jose Antonio Anzoategui complex, which account for nearly 70 percent of loadings, are at their highest since at least 2013:
3) We’ve had a sprinkling of economic data out of Europe today; tales of retail sales in Blighty (aka the UK) were much better than expected, while French unemployment ticked lower to (a still-elevated) 10.2 percent.
Onto the U.S., and weekly jobless claims have come in below consensus for a second consecutive week, but nowhere near as dreadful as last week’s doozie of a miss. 278,000 claims were seen, a little higher than consensus of 275,000. Philly Fed manufacturing was similar to the regional NY Empire manufacturing number earlier in the week – both have been below consensus and showing worsening conditions. Related: Are The Saudis Facing A Full-Blown Liquidity Crisis?
4) The chart below is from this piece about the ongoing prominence and dominance of Saudi Arabia in the global oil market ahead of its IPO. With Saudi embroiled in a market share battle, it still has some of the largest oil resources in the world, with the some of the lowest breakeven costs. In contrast, although countries such as Canada and Russia have access to vast resources, breakeven costs for these projects are considerably higher:
(Click to enlarge) Related: Russia Remains Determined To Stop Israel-Turkey Pipeline Deal
5) Finally, the below chart highlights the largest sovereign wealth funds across the globe. The key takeaway is that the majority of these funds are held in petro-nations; the largest funds are war chests built on oil wealth:
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By Matt Smith
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