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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 Wait And Watch For OPEC’s Next Move

Rigs

It is quadruple witching day in the markets today, and accordingly, oil prices are scared stiff, hardly budging. Despite it being St. Patrick's Day, prices are struggling to stay in the green, as market participants try to weigh up whether OPEC is going to continue its production cuts (or even implement them in the first place). Hark, here are five things to consider in oil markets today:

1) We've been highlighting for a while that Saudi Arabia could be looking at supplementing lost revenues from the OPEC production cut by exporting more products. We have published a white paper in recent days (accessible here) which digs into this theme a bit more, as well as other key elements of the current oil market.

The chart below is lifted from the white paper. The refinery utilization rates of Saudi Arabian and UAE refineries have been lower than the rates of their global peers; ramping up their refining activity would allow the two producers to ship more petroleum and make more money while keeping crude oil out of the global balance. February's rebound is pointing furiously to that, after seasonal maintenance comes to a close:

(Click to enlarge)

2) Following on from the above, Saudi and UAE have built additional export-focused refinery capacity to the tune of 1.4mn bpd in the last four years. Saudi is planning to double its global refining capacity within ten years, with these additions starting by the end of the decade:

(Click to enlarge)

3) Here we are, supposedly in the midst of the OPEC production cut, and Iraq continues to export with seeming reckless abandon. According to a spokesman at Iraq's oil industry, exports from both northern and southern Iraq were at 3.87mn bpd last month; we see in our ClipperData that this month's pace is even higher. Related: Saudi Arabia Undermines The OPEC Deal By Increasing Production

To add further fuel to the fire, Iraq is planning to increase output to 5mn bpd by the end of the year. The country is - apparently - still committed to the OPEC production cut. Hum dee dum.

4) According to reports, Rosneft has been offered a 10 percent stake in a joint venture in Venezuela's Orinoco Belt, as PdDVSA - Venezuela's state-run oil company - scrambles to try and raise cash. PdVSA needs to service its debt, with its next obligations estimated at $3 billion in April.

5) There is an interesting take on global demand in the WSJ, which draws attention to the fact that global oil demand usually gets revised up from initial estimates. Over the last 7 years, the IEA's annual estimates for global demand have been revised up by 880,000 bpd.

Both the IEA and OPEC see demand growth easing lower from last year's pace. IEA sees demand growth slowing to 1.4mn bpd this year, from 1.6mn bpd in 2016, while OPEC sees it slipping from 1.38mn bpd in 2016 to 1.26mn bpd this year.

While in isolation, this may seem bullish for prices, it does raise a key question: if the IEA is missing the target on demand, isn't it just as likely to miss on its supply estimates?

(Click to enlarge)

By Matt Smith

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Leave a comment
  • jack ma on March 17 2017 said:
    When will Saudi commit a multi-pronged data point false flag attack on one of it 's own oil facilities and then blame the Yemen Shia for said attack. Oil quickly rises, Saudi spares itself bankruptcy and a trip to the IMF debt window for very expensive funds, USA weapon sales explode up as Saudi counters with extreme prejudice and continues it's Yemen genocide bomb after bomb, and last but not least, SDRL rises as oil floats to the top of the price charts on the geopolitical upheaval.

    Out of desperation and with Saudi facing a colossal collapse on 50 oil, do not think for one moment that such a horrific event cannot happen. The Saudi Unroyal family of murdering thugs so well protected by the UN will soon face inevitable karma for it's genocide to the South and many patient onlookers sit in the theatre of the world stage waiting with great anticipation as the day of reckoning nears. Saudi is in the doom days now with little light and much darkness now. I have such a seat and such a view. So far ever present smiles on the faces of these thugs in robes is slowly being washed away with fear and anxiety. No KINGS here so time will treat them for what they are. OPEC = War Criminals = SA.


    Just keeping it real here for your readers that cannot really possibly believe some of the corporate news be force fed to them.

    Warmest regards and have a blessed day.
  • Kr55 on March 17 2017 said:
    The article on IEA missing demand addressed supply if i recall correctly. Basically IEA overestimates supply historically. They basically always project higher supply and lower demand. That's how they get things like in 2014 when he projected a 3M barrel/day oversupply, one of the favorite lines for the bears, even after the IEA revised it to 1.8M/day.

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