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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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Could Oil Sink Below $40 Per Barrel Again?

Arightee folks, this week is set to be a scream (R.I.P. Wes Craven) as we shimmy from August into September (hark, 114 shopping days until Xmas), and into a deluge of new economic data. Chinese equities overnight have wilted into the end of the month, racking up a 12.5% loss for August, while we’ve had a few tidbits of data out of Europe.

While the UK is kicking back and enjoying a summer bank holiday, we’ve had strong tales of retail sales out of Germany (up 1.9% MoM versus 1.0% expected), while Italy’s were softer than gelato on a summer’s day, coming in -0.3% versus +0.1% expected. Eurozone CPI continues to try and stave off deflation, holding at +0.2% YoY. As we know all too well, all paths lead back to energy, hence falling oil prices are reining in inflationary pressures once again. Related: We Could See An Economic Collapse As Debt Defaults Pile Up

The biggest data point of note in the US today is the Chicago PMI, which gauges the health of manufacturing in the Chicago area. It generally gives us a heads-up as to what to expect from tomorrow’s PMI print. China kicks off the procession of new PMI prints this evening, while the week culminates in Nonfarm Friday here in the US (complete with fanfare). Related: OPEC Divorce And Self-Destruction Thanks To Saudi Oil Strategy?

From their annual retreat at Jackson Hole, Wyoming, members of the Federal Reserve have fanned the embers of hope for a potential interest hike in September. Markets have responded accordingly with a risk off stance (A Nightmare on Wall Street?), and equities are selling off to start the week / finish the month. After last week’s emphatically emphatic rally, crude prices are retracing strongly thus far, falling in line with general risk appetite and spooked by Chinese economic fears.

As we fast approach refinery maintenance season, the return to action at the Whiting refinery is helping to ease retail gasoline prices lower in the Chicago area once more. California prices are also falling in line with a typical seasonal descent as supply concerns ease in the Golden State. Retail prices on the national average are now dropping below $2.50/gallon, and should continue to retrace in the coming months – despite the expectation of a deep refinery maintenance season.

(Click to enlarge)

We’ve had a few developments on the European front over the weekend in terms of oil and gas. Yesterday it was announced that Italian oil and gas company Eni has discovered a huge natural gas field about 80 miles off the coast of Egypt. It is the largest ever find in the Mediterranean Sea, holding 30 Tcf – enough to supply Egypt for decades. Related: Oil Prices Compound Iraq’s Stability Concerns

It was also announced yesterday that Maersk oil has received approval to develop the Culzean gas field, the largest discovery in the North Sea for a decade. The field contains between 250 million and 300 million barrels of oil equivalent, and production is set to start in 2019, and run for 13 years. Production is expected to plateau at 60,000 to 90,000 boe/d – around 5% of Britain’s demand come 2021.

Finally, the EIA’s monthly petroleum supply report out today is set to highlight the below revisions to U.S. oil production for January through May. June’s number is at 9.3 million barrels per day (b/d), a decrease of approximately 100,000 b/d from the revised May 2015 figure.

The reason for the revisions is due to the EIA trying to improve its accuracy. Previous estimates of have been based on tax information and other production data obtained directly from state agencies, while the new estimates incorporate survey-based methodologies also.

By Matt Smith

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