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This Key Data Points At Strong U.S. Oil Demand

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Dollar Strength Takes Its Toll On Oil Prices Again

Energy plant

As we move into September, the return of oversupply fears are clobbering the crude complex lower, with gasoline leading the charge. With Nonfarm Friday on deck tomorrow, bringing the prospect of a decent report and a stronger dollar (i.e., headwinds for crude), hark, here are five things to consider in oil markets today:

1) Back in July we discussed how Colombia's economy was holding up comparatively well versus its Latin American neighbors, as foreign investment in recent years has helped to bolster its economy. Unfortunately, we are now seeing it slowing quicker than expected, as recent interest rate hikes (11 consecutively!) start to bite.

Second quarter economic growth was at its slowest pace since 2009 at 2 percent YoY, as policy-makers prioritized quelling inflation at the expense of slower economic activity.

(Click to enlarge)

A slowdown in drilling activity due to the low oil price environment has put pressure on production, hurting government revenues. This is also being reflected through in lower crude exports, which are down over 5 percent this year compared to the 2015 average.

That said, Colombian crude exports to the U.S. (mostly of Castilla, Vasconia) are considerably higher than last year. While the majority of this crude makes its way to the U.S. Gulf coast, the East and West coasts are consistent beneficiaries.

 

(Click to enlarge)

2) After August's shenanigans of short-covering and Opecian jawboning, we now shuffle into the shoulder season of September and October - bridging the gap betwixt summer and winter.

As we exit summer driving season, and as refinery maintenance ramps up, demand eases, and typically...prices come under pressure. As the chart below illustrates, Brent prices have fallen on average by $4.43 in September over the last decade, the biggest drop of any month - and we are starting this one looking lower also.

(Click to enlarge)

3) The chart below is from a piece by the FT, which addresses how the rise of electric vehicles may impact oil demand. After less than 6,000 electric cars were on the road in 2009, this number has risen to 1.26 million last year - an impressive ramp up. That said, OPEC projects only 6 percent of the world's cars will be powered by something other than oil by 2040, while Exxon puts this number under 10 percent. IEA sees current global electric vehicle penetration at 0.1 percent.

We have highlighted previously here how four countries account for 80 percent of the total electric vehicles sold last year - China, U.S., Netherlands and Norway. Below shows the breakdown of transport in global demand; it is estimated that it would take 50million to 100 million electric cars to displace 1mn bpd of oil.

4) While it is difficult enough to interpret China's economic data in isolation, the two PMI manufacturing numbers just released further mottle the picture, telling different tales. While the official number was much better than expected, at 50.4 (vs. an expected contraction at 49.9), the Caixin print dropped considerably on the prior month to stalling speed at 50. The chart below (h/t @CapEconChina) illustrates their divergence.

5) Finally, there is a piece out on RBN Energy today written by the mighty Rusty Braziel, covering condensate exports and the challenges faced. This piece is powered by our ClipperData, and highlights how condensate exports have been on the rise in the first five months of this year, despite the lifting of the U.S. crude export ban.

Even though exports dropped off precipitously in July, volumes have been mustering a bounce in the first few weeks of August:

(Click to enlarge)

By Matt Smith

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