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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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Crude Seesaws Ahead Of Inventory Data

oil tanker

Crude is flip-flopping ahead of an exceedingly likely inventory draw to crude stocks from tomorrow's Labor Day-delayed inventory report. With a choppy U.S. dollar, crude is getting whipsawed around; hark, here are five things to consider in energy markets today:

1) Despite this piece today highlighting the strong appetite for sweet crude from teapot refiners in Qingdao, we still see Arab Gulf sour grades as the leading source of imports into Qingdao.

That said, according to our ClipperData, imports of sour Latin American grades have been marginalized in recent months as total teapot demand wanes, while West Africa - the leading region for sweet grade crude to the northern port - continues to see volumes holding up.


(Click to enlarge)

2) The chart below is a useful reminder that while Asia is the leading destination for crude exports, it also plays a key role as a producer too. Asian oil production accounts for about 8 percent of supply at 7.5 million barrels per day last year, but as we see capex cuts in countries such as China and Malaysia, this region is set to see falling production over this year and next.

China is set to lead the charge in terms of production losses, with output dropping by more than 6 percent this year as leading producers PetroChina and Sinopec slash spending. Imports are projected to account for 76.1 percent of Asian supply next year, up from 73.4 percent in 2015.

(Click to enlarge)

3) Business Insider highlights ten key takeaways from an HSBC report on why current oversupply in the oil market is going to flip to a future supply squeeze.

The piece underscores something which has been concerning us for many months. The distinct lack of investment in the oil industry over the last few years means that future supply is not going to be enough to offset the natural decline rate of 5-7 percent for post-peak production. HSBC estimates that 41-48 million barrels bpd are going to be lost over the coming decades, which will need to be replaced (and more) to offset rising emerging market demand:

(Click to enlarge)

4) The chart below from EIA shows thermal generation in California this summer down 20 percent on year-ago levels, while generation from hydroelectricity and other renewables helped to largely offset this drop - also aided by imports. Wind and solar represented 26 percent of California's generation capacity in June, helping to boost renewables, while easing drought conditions meant hydroelectricity could be leaned on more than in the summer prior.

(Click to enlarge)

5) Two different pieces from the Wall Street Journal today highlight how the transportation sector points to a rocky road for both the U.S. economy and product demand. The first piece addresses something we have highlighted before - how the trucking sector continues to struggle amid overcapacity and weak demand.

Heavy-duty truck orders are down 35 percent from year-ago levels, at their weakest level for the month of August since 2010.

The second piece highlights how vehicle miles traveled in the U.S. are still at a record, but have seen year-over-year growth slowing for four consecutive months to June.

Despite retail gasoline prices currently at a lowly $2.20/gallon, and set to drift lower toward the $2/gallon mark in the coming months, demand growth appears to have been maxed out, as job growth is slowing in the U.S. and Europe, while auto sales should slow as well.

By Matt Smith

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