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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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Low Oil Prices Force Saudis To Re-Shape Domestic Energy Policies

Seventy-six years to the day after Ol’ Blue Eyes recorded ‘All or Nothing At All‘, and the Federal Reserve finds itself in a similar predicament. For betwixt now and 2pm ET, we are set for markets to be pushed and prodded around by uncertainty, before we hear whether the Federal Reserve has hiked interest rates for the first time in nearly a decade. After yesterday’s voracious rally in the crude complex, prices are retracing today, and will likely be ushered around by broader market sentiment and dollar meanderings.

Moving swiftly on, overnight economic data has arrived courtesy of Japan; imports fell more than expected (-3.1% YoY), while exports rose at a lesser pace (+3.1% YoY). Accordingly, Japan’s trade deficit widened to 570 billion yen, the largest deficit since February. Meanwhile, tales of retail sales from the UK came in just shy of consensus on a YoY basis at 3.7%.

Across the pond to the US and we have had weekly jobless claims, which have come in at 264k, much better than the consensus of 275k. Not wanting to further add to the wave of Fed speculation ahead of today’s decision, but……if you take a peek at the weekly jobless claims over the last five decades, the low we saw last month of 266k (on the 4-week moving average) was the lowest level since December 1973. With an unemployment rate at a 7-year low of 5.1%, there is little objection to an interest rate hike coming through from the jobs data. Related: Oil Industry Influence Waning Amid Oil Price Slump

(Click to enlarge)

There’s a couple of tidbits out today about Saudi Arabia. First up, its reserves continue to shrink. The IMF projects that Saudi Arabia’s budget deficit will exceed 400 billion riyals ($107 billion) this year as lower oil revenues hurt the economy. Oil generally accounts for 90% of government revenue, whereas this year it will only account for 81%. Given this turn for the worse, the government may assess removing subsidies on gasoline, which currently costs 16 cents per liter, while a shift towards renewables may also be considered. Related: For Canadian Oil Sands It’s Adapt Or Die

Secondly, Saudi Arabia’s state-owned oil company, Saudi Aramco, has confirmed that the acting president and chief executive, Amin H. Nasser, will assume these positions on a permanent basis. And in a final OPEC-related tidbit, an internal report from the cartel projects oil prices rising at a steady $5 per annum, to reach $80 by 2020.

(Click to enlarge) Related: The Shale Delusion: Why The Party’s Over For U.S. Tight Oil

Finally, Chile last night experienced an earthquake measuring 8.3 on the Richter scale. It has a population of ~18 million people, of which 1 million have been evacuated. Chile is the fifth largest energy consumer in South America, and imports much of its fossil fuel needs. According to #ClipperData, it imported 158,000 barrels per day of oil in August from its typical three sources: Brazil, Ecuador, and Uruguay. The US supplies it with refined products to supplement product supply from its three refineries, and total petroleum consumption is currently at 340,000 bpd, according to EIA.

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