Friday, April 1, 2016
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 sector. 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. Global stocks moving with oil
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- Global stock markets typically trade inversely to oil prices, with cheap fuel boosting consumer economies and expensive energy doing the opposite. But more recently, there has been a positive correlation between global equities and oil prices, a correlation that doubled from the end of 2014 to the end of 2015, continuing into this year.
- Why the sudden departure from the past? The IMF says it is because the industrialized world has interest rates near zero, which is different from previous downturns in oil prices.
- In the past, lower prices would cause some deflation, and central banks would respond with lower interest rates, thereby boosting growth. This time around, central banks cannot do that. So, as prices drop and interest rates stay the same, the effect is a higher real interest rate, stifling much of the benefit of low oil prices.
- Thus, the IMF concludes that the economic benefit, counter intuitively, may only come as oil prices start to rise, making real interest rates fall.
2. Oil majors only replace 75% of reserves in 2015
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- The seven oil majors only replaced three-quarters of the oil that they produced in 2015. For many, it has been more than a decade since the so-called reserve-replacement ratio has dipped below 100 percent.
- ExxonMobil (NYSE: XOM), the largest publically-traded oil company in the world, only replaced 67 percent of the oil it produced last year. BP (NYSE: BP) only replaced 61 percent. Statoil (NYSE: STO) only replaced 55 percent.
- The reserve-replacement ratio is a metric used for investors to determine a company’s long-term prospects. A ratio below 100 percent suggests that they are failing to make new discoveries.
- Still, some of the loss is due to accounting rules. With low oil prices, some reserves are no longer considered to be “proved.” Reserves will rise again when prices do.
3. Oil demand rising faster than industrial production
- Credit Suisse made headlines this week when it issued a bullish…