Friday July 19, 2019
In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy and metals sectors. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.
Let’s take a look.
1. Weak gasoline demand drags down markets
• OECD gasoline demand has declined by 70,000 bpd over the past year, according to Bank of America Merrill Lynch. The last time demand contracted for four consecutive quarters was six years ago. Notably, however, oil prices were in triple-digit territory in 2013, not the ~$60s as they are today.
• Gasoline demand in the U.S. has declined after several years of strong growth, pushed higher by low fuel prices.
• The trend is negative for the refining sector, which is also set to see additional capacity increases. “Global refining capacity additions drastically increased in 2018 and should remain high through 2021, averaging more than 1mn b/d annually, a multiple of the 2013-17 period,” Bank of America said.
• “We expect gasoline cracks could come under further pressure later this year as new refineries ramp up and refineries return from turnarounds,” Bank of America said.
2. Commodity prices plunge, but could rebound
• Slowing economic growth has taken a toll on a range of commodities, particularly with the Chinese economy growing at its slowest pace in nearly three decades in the…
Friday July 19, 2019
In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy and metals sectors. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.
Let’s take a look.
1. Weak gasoline demand drags down markets
• OECD gasoline demand has declined by 70,000 bpd over the past year, according to Bank of America Merrill Lynch. The last time demand contracted for four consecutive quarters was six years ago. Notably, however, oil prices were in triple-digit territory in 2013, not the ~$60s as they are today.
• Gasoline demand in the U.S. has declined after several years of strong growth, pushed higher by low fuel prices.
• The trend is negative for the refining sector, which is also set to see additional capacity increases. “Global refining capacity additions drastically increased in 2018 and should remain high through 2021, averaging more than 1mn b/d annually, a multiple of the 2013-17 period,” Bank of America said.
• “We expect gasoline cracks could come under further pressure later this year as new refineries ramp up and refineries return from turnarounds,” Bank of America said.
2. Commodity prices plunge, but could rebound
• Slowing economic growth has taken a toll on a range of commodities, particularly with the Chinese economy growing at its slowest pace in nearly three decades in the second quarter.
• Still, a range of analysts are optimistic. The IEA sees oil demand growth rebounding strongly, rising from a weak 310,000-bpd rate in the first quarter, 800,000 bpd in the second quarter, to a blistering 1.8 mb/d rate in the second half of 2019.
• Other commodities would benefit from a rebound in economic activity. “The Chinese economy is reaccelerating as the Beijing’s stimulus efforts feed through and provide a boost to global materials demand,” Scotiabank wrote in a report.
• “We expect that base metals’ fortunes will reverse through 2020 and prices will rise back to levels more reflective of tight physical balances, while iron ore prices are expected to moderate,” Scotiabank added.
3. Doing more with less
• The U.S. oil industry is doing more with less. Production has decoupled from rig counts, drilling and employment. The rig count is down by 100 over the last year, even as production has climbed around 1.2 mb/d.
• That is very bad news for oilfield services companies, many of which are struggling to survive. The top 50 U.S. independent oil companies could cut spending by as much as 20 percent this year, according to Reuters and DrillingInfo. That is the average – others might cut as deep as 60 percent.
• Bankruptcies for oilfield services companies spiked in 2016 after oil prices crashed and drilling dried up. Nearly 180 companies have declared bankruptcy since 2015.
• Weatherford International was the most high-profile, agreeing with creditors to restructure nearly $6 billion in debt.
4. OPEC outages largest in four years
• Unplanned oil production outages in OPEC countries averaged 2.5 mb/d in the first half of 2019, the largest total since late 2015. That does not include the OPEC+ production cuts, which are planned outages.
• In June, Iran alone accounted for 1.7 mb/d of unscheduled production outages, according to the EIA.
• Notably, the EIA does not include the substantial supply losses from Venezuela. The South American OPEC member has lost more than 1 mb/d in the last 18 months, but because much of that is due to natural declines, irreparable damage and underinvestment, almost none of the losses can comeback within one year. As a result, the EIA chalks it up to “loss of capacity” rather than an unplanned outage.
• When including lost capacity and the OPEC+ voluntary production cutbacks, the oil market is missing around double the 2.5 mb/d of unexpected outages.
• However, the surge in supply from non-OPEC countries, along with weak demand, has kept the market well-supplied. The IEA estimates that the oil market was in a state of surplus by 0.9 mb/d in the first half of the year.
5. Bitcoin soars, crashes, rebounds
• Bitcoin soared above $12,000 over the past month, but crashed last week after renewed scrutiny from the U.S. government.
• President Trump took to twitter to denounce Bitcoin and Facebook’s planned cryptocurrency, Libra. “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity....,” Trump said on twitter on July 11.
• Bitcoin prices crashed after the tweet. The crypto sector came under another round of pressure when Facebook officials testified in front of a skeptical Congress this week. Thursday morning, Bitcoin fell below $9,500.
• However, as is often the case with Bitcoin, sentiment shifts on a dime. By late Thursday, Bitcoin rocketed back above $10,000, which analysts attributed to speculative moves. Apparently, investors thought the selloff went too far.
6. Railcar loadings decline
• Railcar loadings have fallen sharply in the last few months, offering a bit of evidence that points to a slowing economy.
• Coal and paper continue their structural decline (which has less to do with macroeconomic weakness). But cyclical data is also weak. Shipments of motor vehicles by rail have declined slightly. Lumber and wood products shipments are down.
• However, shipments of oil and petrochemical products continue to soar as production outstrips the pipeline industry’s ability to keep up.
• Still, the overall trend of weak rail activity suggests the U.S. economy is suffering from a deceleration in growth.
7. China’s coal production breaks record
• Production of coal, steel and aluminum broke new record highs in China in June, which eased concerns of a sharp slowdown in economic activity.
• China’s GDP grew at a 6.2 percent annual rate in the second quarter, the weakest GDP figure in 27 years. But industrial activity picked up in June, helped along by government stimulus.
• Steel production rose 10 percent from a year earlier. Coal production was also up 10 percent.
• “It reflects confidence from the commodity producers,” Helen Lau, analyst at Argonaut Securities Asia, told Bloomberg.
That’s it for this week’s Numbers Report. Thanks for reading, and we’ll see you next week.
