Two hundred and three years after J.F. Hummel patented rubber, and the oil market is bouncing once again. Yesterday’s dollar weakness was encouraged by a super-strong yen; today’s has been egged on by China’s central bank, which has lifted the yuan peg by the most since 2005. With oil up nearly 80 percent (!!) from its February lows, here are six things to consider in the oil market on this final trading day of April:
1) We’ve had another good few dollops of data out overnight, with Europe leading the charge. German retail sales were worse than expected, while French consumer spending improved. French inflation was in line and benign, while Italy continues to teeter in deflationary territory on a year-over-year basis. These numbers, in combination with prints from Spain and Germany yesterday, have left the Eurozone still ticking along in deflationary territory on a year-over-year basis. Related: Big Oil Surprises Analysts, Is The Worst Behind Us?
Economic growth for the region, however, has come in better than expected for the first quarter, up 0.6 percent (and +1.6 percent YoY). Finally, unemployment continues to tick lower also, now down to 10.2 percent from its peak in late 2013:
Eurozone unemployment rate
2) As for U.S. economic data, personal income for March was better than expected, while personal spending disappointed. The Core PCE, the Fed’s preferred measure of inflation, was similar to that of France; in line and benign…up 0.1 percent MoM, up 1.6 percent YoY.
3) The EIA has just released an updated country analysis brief for Iraq, highlighting how oil production has increased by nearly 1.5 million barrels per day since 2011, up 700,000 bpd in 2015 from the year prior to 4.1mn bpd:
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4) 85 percent of Iraq’s oil exports last year were waterborne exports from the country’s southern export terminals. As our ClipperData illustrates below, the majority of these flows head into Asia. China has historically been the leading recipient of Iraqi crude; in 2014 it accounted for 22 percent of volume, as it did last year. Related: $500 Billion In Lost Oil Revenues Forces Gulf Nations To Turn To Debt Markets
Through the first quarter of this year, however, China’s share has dropped to 20 percent, while India’s share has risen from 18 percent in 2014, to 22 percent in 2015, to 28 percent in Q1 of this year. South Korea is the third largest recipient, while the U.S. is in fourth place (no medal). With Iranian exports increasing, the market share battle in Asia continues to heat up.
5) China’s big three oil companies, Petrochina, Cnooc and Sinopec, have just reported their first quarter results. While Petrochina reported its first ever quarterly loss and Cnooc saw revenues drop by 31 percent, Sinopec’s net profit jumped by 266 percent on improved refining margins.
Nonetheless, as the chart below illustrates, Sinopec is seeing surging exploration costs. Cnooc, however, has the lowest production costs of the Chinese majors. Hence, Sinopec should be in the best shape should oil prices remain low, while Cnooc should see the biggest benefit should crude continue to rip higher. Related: Why Saudi Arabia Will Not Win The Oil Price War
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6) As we highlighted last week, LNG exports are ramping up from the U.S., with cargoes sent to Brazil, UAE, India, and Portugal in the last few months. As the chart on the right below illustrates, higher U.S. production has chased down rising consumption over the last decade, driving net imports lower in recent years (illustrated below, left).
Pipeline exports to Mexico will continue to rise in the coming years, as additional export capacity of 3.4 Bcf/d is built out before the end of the decade. Meanwhile, additional export capacity of 5.4 Bcf/d is planned to our friends in the North, as U.S. production is expected to continue growing.
Net imports from Canada have held relatively steady since 2011, but as LNG imports have been marginalized and LNG exports increase, net imports already at their lowest level since 1986 will continue to drop.
(Click to enlarge)
By Matt Smith
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