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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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OPEC Thinks Oil Prices Have Bottomed

OPEC Thinks Oil Prices Have Bottomed

Happy Columbus Day! While most markets are open in the U.S., our friends in the North are closed today to celebrate Thanksgiving, while both Japanese and Brazilian markets are also recognizing national holidays. In terms of economic data flow, our main tidbits have come from India, where September’s inflation data came in slightly higher than expected at 4.41 percent (versus 4.3 percent). Meanwhile, industrial production blew the doors off a 4.8 percent expectation, rising 6.4 percent YoY in August, its quickest pace in over two-and-a-half years:

IndiaIndustrialGrowth

India industrial production YoY, percent (source: investing.com)

The crude complex is trying to find a steady footing after last week’s push higher, with supportive comments out of OPEC members Kuwait and Qatar. Rhetoric indicates they believe oil prices have bottomed out and that a price recovery should be underway next year. Related: Russia’s Move In Syria Threatens Energy Deals With Turkey

China has also boosted the overnight mood by announcing stimulus measures; it is expanding a pilot program to boost the lending ability of banks in nine provinces. The U.S. dollar is again coming under pressure, which is back-stopping all manner of commodities as emerging market currencies continue to rebound:

CommodityReturns

OPEC has released its monthly oil market report today, revising up oil demand growth for this year by 40,000 barrels per day to 1.5 million bpd, while next year it has been revised down by the same amount to 1.25mn bpd.

It now projects non-OPEC supply to contract next year by 130,000 bpd, revising its output expectation down by 290,000 bpd. Demand for OPEC crude for next year is revised up by 500,000 barrels per day to 30.8mn bpd – about 1.2mn bpd higher than this year. Related: Macroeconomic Instability For Emerging Markets Thanks To Commodity Bust

OPEC sees the impact of the lower oil price environment really starting to bite into non-OPEC supply this quarter, projecting a 1.9mn bpd drop in production versus Q4 of 2014 as global upstream spending is slashed by 20 percent. It sees voracious cost-cutting in North America, with exploration and production spending down by 35 percent:

OPECSupplyData

In terms of OPEC’s September production numbers, it increased output by 110,000 bpd to 31.57mn bpd, with Iraq seeing the largest increase (80,100 bpd), followed by Nigeria (34,600 bpd), then UAE (24,300 bpd). Saudi Arabia showed the largest drop, down 48,200 bpd. Related: Does This Offhand Gov't Comment Signal A Big Oil Opportunity?

Finally, this week sees the floodgates open for an onslaught of quarterly earnings releases by U.S. companies. Stripping out the energy sector, earnings are forecast to rise. Steep declines are expected from energy, however, as well as other commodity-linked sectors such as materials and industrials:

EarningsSlowdown

By Matt Smith 

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