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Canada’s Crude Oil Production Cuts Are Unsustainable

With Canada’s pipeline bottlenecks weighing…

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 See A Modest Rebound As Some Bullish Signals Appear

Forty years to the day after Bruce Springsteen’s third album was released, and markets do indeed seem born to run today. Although the Chinese stock market fell a further 7.6% overnight, the post-close announcement of an interest rate cut (by 0.25%) and a cut in China’s reserve requirement ratio (by 0.5%) has further endorsed a rebound in both European and US equity markets. Both were already looking higher, while the crude complex is seeing a solid bounce away from +6-year lows thus far.

While economic data releases seem to have a lesser weighting in these times of volatility and woe, we have still had some numbers out of note. A refresh to German Q2 GDP didn’t budge, still showing +0.4%

Q0Q (+1.6% YoY). German business sentiment (IFO) also showed both improvement and above-consensus prints across the board. In the US, we get a sprinkling of housing releases today, as well as a preliminary PMI services number. And, hark, a new monthly dump of data awaits us next week with the arrival of September. Related: Is This The Energy Storage Breakthrough We Have Been Waiting For?


Related:OPEC’s $900 Billion Mistake

In terms of the crude complex, although we are getting a solid rebound thus far today, there still appears to be a strong tilt towards bearish sentiment from a bigger picture perspective (n.b, recent calls: $20 oil, no, $15 oil, no, $10). From a supply perspective, focus remains front and center on OPEC (Saudi) and Non-OPEC (US).

Given the rise in production in the last year from Saudi, and the lack of response by US production – hence a second dip in prices – an increasing number of voices are joining the chorus to question whether Saudi’s tactics may have been misguided. As their budget deficit blows out and their foreign exchange reserves gradually get whittled away, speculation rises as to if they may indeed cut production amid an emergency OPEC meeting. It seems unlikely.

There are some signs that brighter times may be ahead. The below chart illustrates how Brent time-spreads have narrowed to $7 with this latest dip, compared to a wider price gap of $11 earlier in the year. While it could be suggested that this indicates lowered expectations for the year ahead, there is also the argument that the market is seeing the supply surplus shrinking (say that three times fast). Related: China’s Stock Market Meltdown Dragging Global Markets With It

(Click to enlarge)

By Matt Smith

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