• 4 minutes Will We Ever See 100$+ OIL?
  • 8 minutes Iran downs US drone. No military response . . Just Destroy their economy. Can Senator Kerry be tried for aiding enemy ?
  • 11 minutes Energy Outlook for Renewables. Pie in the sky or real?
  • 3 hours Shale Oil will it self destruct?
  • 1 hour U.S. Administration Moves To End Asylum Protections For Central Americans
  • 31 mins White House insider who predicted Iran False Flag, David Goldberg found dead in his New York apartment
  • 7 hours NYT: Mass Immigration Roundups in U.S. to Start Sunday
  • 1 hour U.S.- Taiwan: China Says Will Freeze Out U.S. Companies That Sell Arms To Taiwan
  • 1 hour South Korea imports No Oil From Iran in June - First-Half Imports Fall 37%
  • 2 hours Starlink Internet Courtesy of Tesla
  • 1 day Panama revoked registrations of tankers flying under their flag that have not complied with sanctions. Most are Iranian tankers. Vessel seized in Gibraltar, Grace I, flying under Panamanian Flag. Registration revoked in May. England seizing justified
  • 24 hours Oil Price Could Fall To $30 If Global Deal Not Extended
  • 20 hours Rising air pollution and green house effect
  • 1 day Is This The End of BBQ?
  • 3 hours Trump vs. Xi Trade Battle, Running Commentary from Conservative Tree House
  • 12 hours Germany exits coal: A model for Asia?

Not Dead Yet: OPEC Can Still Move Markets

OPEC

Friday, August 26 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. Speculators close out shorts on OPEC rumors

(Click to enlarge)

- OPEC succeeded in ending the bear market for crude oil when it announced an unplanned meeting in Algeria in September. Oil prices surged more than 20 percent in two weeks.
- Of course, the physical market did not change much in those two weeks, but oil speculators rushed for the exits on their short positions as expectations of a production freeze rose.
- Hedge funds and money managers slashed their short positions by 56,907 contracts for WTI futures for the week ending on August 16, the sharpest fall in a decade.
- "This is all courtesy of some very well-timed comments from the Saudi oil minister," John Kilduff, partner at Again Capital LLC, told Bloomberg. "They’ve been successful over the last year in jawboning the market, and this is the latest example."

2. Saudi Arabia’s cash reserves continue to fall

(Click to enlarge)

- Saudi Arabia’s cash reserves fell by another $11 billion in June, a time when oil prices rose to $50 per barrel.
- Saudi Arabia has been burning through its reserves at a torrid pace in order to maintain its currency peg and prop up its economy. The oil kingdom has lost $102 billion since June 2015 and $176 billion since it peaked in August 2014.
- Still, the major budget cuts and early effects of a long-term economic transformation are starting to bear fruit. Earlier this month the IMF said that the fiscal deficit for Saudi Arabia would narrow to just 9.6 percent of GDP in 2017 compared to 13 percent of GDP this year.
- But it cannot carry on indefinitely. Saudi Arabia’s cash reserves have declined from $746 billion to just $570 billion in two years. While it can manage this burn rate for a while longer, oil prices will need to rebound if the country is to avoid a deeper crisis.

3. Permian becomes shale king

(Click to enlarge)

- The Permian basin has emerged as the most coveted shale basin in the U.S., one of the only shale plays to turn a profit at today’s prices.
- Companies trying to buy up assets on the cheap have focused on the Permian.
- Of the $16.7 billion in asset sales in the oil industry this year, about $7.46 billion have occurred in the Permian Basin, compared to just $1.88 billion in the Eagle Ford, according to Bloomberg.
- Concho Resources (NYSE: CXO) and Newfield Exploration Co. (NYSE: NFX) are just two of the companies that have purchased assets in the Permian recently. On August 23, PDC Energy (NASDAQ: PDCE) paid $1.5 billion to take over two companies with Permian holdings.
- Oil companies, private equity, and other major sources of money are pouring into the Permian at the expense of other shale regions.

4. Chinese oil demand falters

- China is churning out record levels of refined product, according to the IEA, but despite that fact, its crude oil demand stood at 11.5 million barrels per day in June, up only 2 percent from year-ago levels.
- China’s oil demand continues to grow, but at a slower and slower rate. Gasoline demand was up only 0.1 percent year-on-year in June. That compares to the 5.4 percent y-o-y rate in 4Q2015 and the 4.8 percent y-o-y rate in 1Q2016.
- Vehicle sales in China are still strong. The world’s largest car market saw sales grow more than 9 percent in the first half of 2016, a solid sign that oil demand growth could bounce back.
- But China’s industrial activity is slowing down, so oil demand growth figures will only rebound to about 2 percent in 2017 – a long way from years past when demand grew at two or three times faster than that rate.

5. Global refining runs to set record

- The IEA expects the third quarter to see a record high for refining runs around the world, topping 80 million barrels per day for the first time. In July, refining runs surpassed 81 mb/d.
- The third quarter usually sees higher runs because refiners rush to meet peak summer demand and also build up some storage for maintenance season in autumn.
- But refining runs are expected to grow by 2.2 mb/d from the second to third quarter of 2016, while demand will only grow by 1.4 mb/d. That helps explain the buildup in refined product storage in recent months.
- It also means that refining margins have crashed. Of course, refiners will subsequently cutback on output, which will put downward pressure on crude prices but help refining margins rebound.

6. China’s Cnooc has low oil reserves

(Click to enlarge)

- China’s state-owned Cnooc successfully reduced costs by 15 percent in the first half of 2016 and also slashed spending by 33 percent.
- But as the WSJ notes, the company has not lowered its production target. That means it is burning through its oil reserves. Cnooc’s best reserves, located in China, will only last for three years at current production rates.
- Its overall reserve life only stands at 8.4 years, one of the lowest figures compared to its international competitors.
- Worse, some of its assets abroad are disappointing. Cnooc paid $15 billion for Canadian oil sands producer Nexen a few years ago. Oil spills and safety disasters in Canada are piling up the losses for Cnooc. China’s state-owned companies reported losses this week, battered by low oil prices and stagnating production.

7. Battery prices falling fast

(Click to enlarge)

- The cost of lithium-ion batteries needed for energy storage are falling quickly. Batteries are a key component of mainstreaming electric vehicles, and providing energy storage for renewable energy.
- The UK is set to unveil the winners of 200 MW energy storage contract, which could be one of the largest this year around the world. The energy storage market is small but growing quickly, expected to rise to a $5.1 billion market by 2020, according to Bloomberg New Energy Finance.
- Growth will depend on the falling cost of batteries. Costs are already falling quickly, and could again drop by half over the next decade.
- BNEF sees electric vehicles capturing more than a third of the global car market by 2040, but rapid advances in technology are hard to predict, so that share could be even larger.

That’s it for this week’s Numbers Report. Thanks for reading, and we’ll see you next week.




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play