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Aramco May Have To Cut Costs To Pay Out Big Dividend

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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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A Big Week For The Oil Markets Ahead Of OPEC Meeting

On Lou Ferrigno’s 64th birthday, economic concerns are growing to hulk-like proportions. The theme of economic weakness has been kicked off by poor Chinese trade data out over the weekend, compounded by a downward revision to economic growth by the OECD (Organisation for Economic Cooperation).

In terms of China, exports dropped by 6.9 percent (YoY) in October, a bigger drop than the 3.0 percent expected. Imports were down 18.8 percent (YoY), worse than the -16.0 percent expectation, and down for a twelfth consecutive month. All in all, this has meant that China’s trade surplus has widened to a new record high, as slowing imports and exports indicate both domestic and global weakness. To endorse this message, the OECD has released its latest report, cutting its global economic growth forecast to 2.9 percent for 2015, and to 3.3 percent for next year. Related: How Shale Oil Will Survive The Crude Carnage

China Trade Balance (source: investing.com)

After the usual first-week-of-the-month economic data onslaught, we see a bit of a pause, and the baton of reporting activity passed on to the energy complex. Tomorrow we get EIA’s monthly short term energy outlook, while Thursday we see OPEC’s monthly oil market report. IEA rounds out the week with a spooky Friday 13th release of its monthly oil market report. In observation of Veteran’s Day on Wednesday, the weekly oil inventory is delayed until Thursday, while we have to wait until Friday to see natural gas move to a record storage level. Related: New Oil Price Reality Spells Doom And Gloom For These Gulf States

Crude is seeing some buying interest to start the week, placing its faith in Chinese crude demand, as customs data showed oil imports were up 9.4 percent from a year earlier. According to our ClipperData, waterborne imports in October are down year-on-year for the first time in 2015. The only piece missing between this and total crude imports is Russian pipeline flows, which were ~550,000 barrels per day last year. While Russian pipeline flows have likely increased this year to boost total imports, waterborne flows are slowing as inventories bulge and demand subsides.

In other bits and bobs, the M&A rumor mill is running wild following a report that Apache Corp has rejected the initial approach of an unsolicited takeover offer. We have also had the chairman of Saudi Aramco going on record about Saudi oil production, saying “there have been no conversations here that say we should cut production now that we’ve seen the pain.” Saudi continues to do what we expect of them – hunker down amid adverse conditions. Related: Only 1 Percent Of Bakken Shale Is Profitable At These Prices

Saudi Vice Minister of Petroleum & Mineral Resources Prince Abdulaziz bin Salman has also gone on record over the weekend saying nearly 5 million barrels per day of projects have been deferred or canceled, with investments cut by $200 billion this year. OPEC Secretary-General Abdullah al-Badri has also talked up the cartel’s prospects, saying, “the market will return to more balance in 2016…we see less non-OPEC supply. And we see an increase in the demand for OPEC crude.”

Finally, according to the latest CFTC data, hedge funds boosted net-long positions in WTI by 20 percent. This is the biggest rise in seven months, as money managers once again try to catch the falling knife that is black gold, Texas tea:

(Click to enlarge)

By Matt Smith

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