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Why Oil Is Still Underpriced

Oil prices are pulled in…

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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Battle For Crude Market Share In China Heats Up Again

Oil prices are looking lower, facing headwinds of a stronger dollar and a bearish oil inventory report. Hark, here are six things to consider in oil markets today:

1) We've been having a bit of banter on social media today about Chinese oil imports, after one source reported that Angola surpassed Saudi Arabia in July to become the leading source of crude imports. Our ClipperData, which is super-closely aligned with Chinese customs data (tighter than a drum), indicates that Saudi Arabia was the leading supplier in July.

That said, we did see Angolan flows into China surpass those of Saudi Arabia in June, a scenario which has played out six times since the start of 2013.


(Click to enlarge)

2) While the latest report from Baker Hughes showed that the oil rig count rose again, up for eight consecutive weeks and up nearly 30 percent from the lows of late May to 406 rigs - the Permian Basin has got a headstart.

Permian is resoundingly considered the lowest-cost U.S. shale play, and its rig count bottomed out a month prior to the low ebb of the aggregate rig count in late April, some two-and-a-half months after WTI dipped to a low for the year in twenty dollardom. The Permian rig count has now rebounded emphatically, up nearly fifty percent in recent months, and accounting for nearly half of all active U.S. rigs.

(Click to enlarge)

3) The graphic below highlights how 'Big Oil' continue to take on more debt, as the slashing of capital expenditures mean they are not generating enough cash to cover both operations and dividends. ExxonMobil, Royal Dutch Shell, BP and Chevron hold a combined net debt of $184 billion - more than double the level back in 2014.

Tough decisions lie ahead; either they have to cut their dividends, sell assets or ramp up investments to boost revenues going forward. No option seems that attractive at this juncture. Related: China Plans To Slash Crude Demand By 250,000 Bpd

4) The mighty Abudi Zein is the author of today's RBN Energy post, discussing how there appears no end in sight for the U.S. East Coast gasoline glut. You can check it out here.

5) In a similar fashion to other oil producers, Norwegian oil companies are continuing to cut investments in the oil and gas industry. Investment peaked in 2014 at 221 billion kroner, before dropping to 195 billion last year. Next year's estimate has been cut to 151 billion, according to Statistics Norway - the lowest level since 2010.

This paves the way for the government to further dip into the country's sovereign wealth fund - as revenue from the oil and gas industry is set to go the same way as investment....lower.

(Click to enlarge)

6) While Japan, South Korea and China accounted for more than half of global LNG imports last year, their imports are dropping; they imported 5 percent less than in 2014. While India and Taiwan - the fourth and fifth biggest global LNG importers - have seen imports increase slightly, it has been rising LNG imports into emerging Asian LNG markets (think: Malaysia, Singapore, Thailand and Pakistan) that are showing the most growth.

Even though these emerging markets are expected pull in more LNG imports in the years ahead, they still only account for a small piece of the Asian pie, even on the aggregate:

(Click to enlarge)

By Matt Smith

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