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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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Congress To Lift Export Ban, WTI Crawls Closer To Brent

Sixty-nine years after the birth of ABBA’s Benny Andersson, and the name of the game for the crude complex today is to navigate the tricky business of a weekly inventory report and the conclusion of the US Federal Reserve FOMC meeting.

Last night’s API report has put the wobbles on expectations for today’s weekly EIA inventory report, as a 2.3 million barrel build was seen. A solid draw was seemingly expected from the EIA report, as refining ramps up; correspondingly, builds are forecast for the products. We are, however, in the realm of ad valorem tax season, so we could well see Gulf Coast stockpiles drop again (hark, down 7 million barrels last week) as inventories are drawn down to avoid end-of-year taxation.

In terms of the Federal Reserve FOMC meeting, today will (surely) be the first time the US has seen interest rates rise in nine-and-a-half years (it has got to happen, right??!!).

Onto economic data flow, and Eurozone inflation data has been similar to what we saw from both the US and UK yesterday: a clambering away from deflationary terrain. The preliminary Eurozone manufacturing PMI for December has come in better than expected, while the services print was worse (the data is awfully early too, brought forward due to Yuletide timing). Related: Forget Oil Majors, Stripper Wells Offer Better Returns

UK unemployment ticked down to 5.2 percent the lowest level since mid-2008, while Brazil saw its best data point for what seems like months (it probably is), as retail sales surprisingly ticked higher (0.6 percent) on the prior month (but are still down -5.6 percent YoY). Ahead of the Fed, in the U.S. we have had both building permits (+11 percent MoM) and housing starts (+10.5 percent MoM) come in better than expected. U.S. industrial production, however, has produced its worst monthly drop since late 2012, dropping 0.7 percent:

U.S. industrial production, MoM (source: investing.com)

Congressional leaders have agreed to lift the ban on US oil exports, which has been in place for the last forty years, as part of a broad package relating to spending and tax legislation. While both the House and Senate still need to approve the deal – as well as President Obama signing it into law – it is expected to see a relatively smooth passage given the package has been sweetened by the addition of environmental and renewable measures, including the renewal of wind and solar tax credits. Related: Finally Some Good News For The U.S. Oil Industry?

Saudi Aramco, Saudi Arabia’s state-run oil company, is set to invest billions of dollars into refining projects in Asia, from Indonesia to Vietnam, as it looks to consolidate its market share in the key global region. By purchasing stakes in Asian refineries, Saudi Aramco can put supply contracts in place to ensure future delivery of Saudi oil.

This is a tactic which has worked very well in the past, illustrated by the joint ventures through Motiva Enterprises on the U.S. Gulf Coast, which ensure Saudi Aramco has a foothold in the US market.

By 2025, Saudi Aramco looks to double its refining capacity to 10 million barrels per day. As our ClipperData illustrate, Saudi has exported ~60 percent of its crude to Asia so far this year. The second largest recipient of Saudi crude is North America, with well over one million barrels per day arriving on North American shores this year, the vast majority of which goes to the U.S. Gulf Coast. Related: LNG Glut Worse Than Oil

By Matt Smith

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