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U.S. Shale Outperforms Expectations In Q1

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Oil Market Heading For Months Of Deficit

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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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Kuwaiti Oil Minister: No OPEC Meeting Before December

While it is a quiet start to the week on the economic data front, the crude complex is having a boisterous beginning. Oil is charging lower as the dollar rises and risk aversion soars. Hong Kong and South Korea are closed for holidays, while the only data point of note out of Asia was a Japanese leading indicator, which was above consensus, but below last month’s number – indicating further softening ahead for the world’s third largest economy. Across to Europe, and both French and Italian confidence numbers came in better than expected.

Here in the U.S. we have had personal spending data, which showed a decent 0.4% increase in August (pssst, we’re down to $2.29/gallon on the national average for gasoline), while inflation data (PCE core indicator) has ticked slightly higher YoY, up to 1.3%, to ease deflationary concerns in the U.S. Nonetheless, despite this seemingly supportive flow of data, an air of gloom hangs over financial markets. Related: Exxon CEO: Alaska Is Its Own Worst Enemy

As the contango starts to widen once more for the six-month spread for Brent, the drumbeat for storing oil at sea begins again. The spread was so wide back in 2008 at over $10 that it earned the name, ‘super-contango‘; currently that spread is much less, but according to estimates, a spread of over $4/barrel for a quarter makes it an attractive option.

OilContango

(Click Image To Enlarge)

In other bits and bobs, IMF head Christine Lagarde says global economic growth at 3.3% this year isn’t a realistic expectation anymore, citing concerns about emerging markets, while saying 3.8% growth for next year appears unrealistic too. Related: EV Market Has An Unlikely Backer

Meanwhile, according to reports, Saudi Arabia has withdrawn between $50 billion and $70 billion in the past six months from global fund managers to repatriate cash to help fund its deficit, as well as reinvest it in less risky investments. Saudi Arabia has seen foreign reserves drop by $73 billion in the last year as oil prices have fallen. Lest we forget, oil accounts for 80% of the country’s budget revenues and 45% of its GDP. All the while, Kuwait’s oil minister has said there is no need for an OPEC meeting prior to the December one. Related: Is This The Mining Equipment Sector’s Last Act?

Data flow will pick up speed from here to build to a crescendo on Friday. We charge through quarter-end on Wednesday – with oil inventory data to boot – before Thursday delivers global manufacturing prints, before we finally reach Nonfarm Friday and official U.S. employment data. It’s going to be a fun week.

By Matt Smith

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