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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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7 Reasons Why Oil Could Fall Even Lower Before Christmas

Seventy-eight years after Walt Disney released the first full-length animated feature, and seven factors in today’s crude complex are dwarfing crude prices.

Happy – Let’s start off with the good news: retail gasoline prices have dropped below $2/gallon on the national average. Prices have broken below the lows seen earlier in the year, and are now at their lowest levels since early 2009.

While unplanned maintenance in California is causing prices to see a little bit of a bump higher, Texas – the second largest consumer behind California – is seeing prices below $1.80/gallon:

(Click to enlarge) 

Dopey – News flow on the economic data front is particularly sedate today, with German producer prices the main release out of Europe. (They were down -2.5 percent YoY for November, in line with expectations). Tomorrow sees a return to form in the U.S., with a variety of releases, from a GDP revision to housing data, but for now…all is in slumber. Related: These 29 Oil Companies Could See Their Credit Ratings Cut

Bashful – While OPEC has been reticent and reluctant to defend its production levels this year, Russia has been unabashedly boosting exports after six years of declines. As refinery improvements have caused less domestic crude demand, this has opened up a window of opportunity for the country to export more.

Crude production has seen a similar trend: Russia has spent much of the year pumping at near-record levels, in an effort to keep its revenues elevated amid an oil price collapse. Azerbaijan has just announced it is abandoning its currency peg, after burning through half of its foreign exchange reserves this year defending its currency, the manat. (Azerbaijan relies on oil for 90 percent of its export revenues). Russia, however, has been able to mitigate some of the pain of falling crude prices by having the ruble weakening at a similar pace: Related: OPEC Members In Jeopardy, How Long Can They Hold Out?

Grumpy – A WSJ article today highlights how the S&P500 Energy index has lost $408 billion from its market capitalization this year – approximately one-quarter of its total value. This miserable move has only accelerated in the last week or so: the index has fallen more than $48 billion since December 16.

Doc – In a show of solidarity, much of commodityland™ this year has sold off with the crude complex. Of these commodity cohorts, Dr. Copper has perhaps been the most faithful. Similar to crude, copper prices are kicking around six-and-a-half year lows, as supply continues to overwhelm demand. Related: Breakthrough In Hydrogen Cracking Could Create Clean Fuel

Nine leading copper smelters in China are weighing up deeper production cuts in an effort to bring some balance to the market. Nonetheless, some Chinese importers have already reduced bookings of term shipments on the expectation of lackluster demand next year.

Sneezy – The old adage that ‘when the U.S. sneezes the world catches a cold‘ seems these days to be just as applicable to the world’s second largest economy, China. Chinese leaders have just approved an economic blueprint for next year which places emphasis on fixing industrial overcapacity and the current property glut, amid their acknowledgement that China is heading for a potentially prolonged slowdown.

Sleepy – As we approach the lifting of Iranian sanctions in the coming months, its oil industry is set to awaken once again from its recent slumber. This is typified by an apparent deal just made between Iran and India, in which Iran will supply oil to India at a steep discount, as well as offering other buying incentives, as it looks to rebuild its market share from its recent stymied levels.

By Matt Smith

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