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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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Besides Europe, Saudis To Capture Russian Market Share In China

Today is national espresso day, and while crude oil prices received an early morning caffeine shot from rhetoric out of Saudi Arabia, the effects of this are fading. Despite OPEC’s leading producer not telling us anything new – that it is prepared to work with OPEC and non-OPEC producers to stabilize the market – prices found some renewed energy from this reiterance, temporarily reversing hefty overnight losses.

Volatility is set to be a dominating theme toward year-end, as we are once again in territory where prices should find a modicum of support. Conditions are very much reminiscent of late August: prices are testing $40, all news appears to be bearish, and short positions held by hedge funds are being extended.

As the chart below illustrates (h/t @JKempEnergy), short positions are once again reaching extremes; they have increased 70% since October, and now at their largest position since late August at 154 million barrels. Given the taut nature of this stretched position, it is natural that we are seeing a bit of an elastic-band snap-back in prices after testing $40. Related: Will 2016 Be The Year Of Wireless Energy?

Prices had initially been charging lower overnight, as the January contract for WTI stepped onto the dance-floor as the prompt month contract. Impending rate hike hopes in the US continue to bolster the dollar, while expectations of further stimulus in the Eurozone have ushered the euro to a seven-month low. This was despite better-than-expected preliminary manufacturing and services data out of the region, coming in at the strongest levels since 2011.

Here in the US , we get a slew of economic data points squeezed into the next three days ahead of the Thanksgiving holiday, including a Q3 GDP revision, durable goods, and an early release of weekly jobless claims on Wednesday.

Related: Why OPEC Can’t Win The Oil Price War

On the energy front, it has been a fairly busy weekend. We had comments out of Venezuela’s oil minister, who said oil prices could drop to the mid-$20s if OPEC doesn’t take any action. Meanwhile, 1.6 million, or three quarters of Crimea’s population, is without power after pylons carrying electricity from Ukraine were blown up. This is set to stoke geopolitical tension in the region.

According to Chinese customs data, Saudi Arabia surpassed Russia in October to be the biggest supplier of crude oil to China. Taking Russia out of the equation (as most of their exports are by pipeline), we can take a look at the top five waterborne exporters to China. According to our ClipperData, Angola and Oman made headway in percentage terms versus Saudi Arabia in October deliveries, while Iranian imports dropped off. In terms of the latest flows in November, Saudi’s exports are stronger thus far, while Iraqi flows are weaker.

Top 5 waterborne crude exporters to China, in % terms (source: ClipperData) Related: Keystone XL Might Prove A Pyrrhic Victory For Environmentalists

Finally, after more than a year of low prices, the US oil patch is really feeling the pain. Rigs are down 65% from their peak of 1,609 in October of last year, while the industry has incurred 250,000 job losses worldwide. Amid a year of cost-cutting and improved efficiencies, the twenty-four largest shale companies have still reported losses of more than $62 billion. While some companies such as EOG say operations are profitable at $50, a price of $40 seems a stretch for the vast majority of producers.

By Matt Smith

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