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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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$380 Billion In Upstream Projects Delayed As Oil Keeps Tanking

The crude complex is rocking out in celebration of Dave Grohl’s 47th birthday today, pushing higher while risk aversion reigns in broader markets overnight. European and most Asian equity markets have been playing catch-up with yesterday’s rout in the U.S., yet as U.S. equities look to rebound today, so doth crude.

In terms of economic data flow, the key piece out of Europe has been from Blighty, with the Bank of England keeping both interest rates and QE levels unchanged. Across to the U.S., and weekly jobless claims have come in worse than expected, at 284,000 – versus consensus of 275,000. The weekly natural gas storage report is on deck today, with the bleak mid-winter promising the biggest withdrawal from storage this winter.

While the global benchmarks of Brent and WTI test the $30 level, regional benchmarks such as Alberta Bitumen are plumbing significantly greater depths. The benchmark for Alberta’s tar-like crude has dropped to a low of $8.35 this week– down from $80 less than two years ago. Even though Alberta Bitumen is cheaper than most benchmarks, given the need for it to be mixed with higher-quality, more-expensive lighter crude to be transported from Alberta to the U.S. Gulf, its drop into single digits is no less remarkable.

 

The chart below is the latest supply projections from the EIA. In their latest monthly report, the EIA sees total global oil production edging higher in 2016, as a drop of 0.4 million barrels per day from the U.S. is offset by a 0.5 million bpd rise from OPEC – in large part from returning Iranian barrels. The agency sees U.S. production flat next year, with another rise from OPEC. Related: Cheap Oil Hits Housing In North Dakota, Texas, and Others

It expects global oversupply to persist, with inventories rising 0.7 million bpd in 2016. It projects we won’t see global oil inventories drawn down until Q3 of next year – bringing an end to 14 consecutive quarters of inventory builds.

 

A report just out by Wood Mackenzie says 68 major upstream oil projects have been delayed due to the collapse of oil prices. This equates to $380 billion of investment being deferred, with ~27 billion barrels of oil equivalent and about 2.9 million barrels a day of production being deferred to early next decade. Deepwater projects are to be hit the hardest, accounting for more than half of new project deferrals. Related: Saudi Aramco IPO More About Geopolitics Than Finance

As investment has been pulled from the oil and gas industry, clean energy investment has hit a record in 2015 at $329 billion. China has led the way with $110.5 billion – double that of the $56 billion seen from the US. This is a 4 percent increase on the prior year, driven by large scale projects – and indicative of the increasing cost competitiveness of solar and wind power.

By Matt Smith

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