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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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Don’t Expect A Breakout In Oil Prices Any Time Soon

Don’t Expect A Breakout In Oil Prices Any Time Soon

One hundred and two years after the birth of Burt Lancaster, and oil prices feel like they are going to be stuck in mid-forty dollardom ‘From Here to Eternity’.

A downbeat backdrop to November has been unfurled by Chinese manufacturing data, combining with signs of ongoing supply strength to weigh on crude prices once more. China’s official PMI came in at 49.8, shy of the market expectation of 50.0.

In all fairness, the alternative measure, the Caixin PMI Index, provided more of a rosier picture, coming in both better than expected and at the highest level since June (albeit only at 48.3). Given the strong relationship between economic health and commodity demand in China, copper prices have slipped to a one-month low. The chart below illustrates how the relationship between the two is so intertwined. Related: This Merger Could Be A Game Changer For U.S. Pipeline Network

Across to Europe, and the Eurozone manufacturing print came in better than expected at 52.3 (versus 52.0), led by Germany and Italy, reined in a little by France. The UK PMI stole the show, however, blowing the doors off expectations to reach 55.5, the highest level since July last year.

Switching to the U.S., and the official U.S. print came in at its lowest level since May 2013 at 50.1. To look at this from a glass half-full perspective, it was still in expansionary territory, and above the consensus of 50.0. Related: How The Fed Has Backed Itself Into A Corner

US PMI Manufacturing Index (source: investing.com)

In combination with this mixed bag of data, we continue to see signs of unrelenting oversupply in the market. Not only did Russian oil production reach a new post-Soviet high in October, rising 0.4 percent to 10.78 million barrels per day, but Gulf oil producers are apparently delaying maintenance until next year to keep production high, reduce costs and take advantage of current higher prices (!).

Finally, the below graphic is pretty nifty, highlighting how gasoline prices haven’t fully captured the drop in oil prices. Even though gasoline prices are nearly 30 percent lower than this time last year ($2.19/gal versus $2.98/gal), the graphic illustrates that the gap between the two has widened. The reason attributed for this wider gap is higher refiner profits, although refiners instead are blaming higher gasoline demand putting a strain on operations, while refinery outages have crimped supply. Related: Energy Storage Now Moving To The Next Level

By Matt Smith

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