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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 Ups Pressure On Iraq, Iran To Freeze Production

On Foo-Fighting drummer Taylor Hawkins’ 44th birthday, OPEC members are again banging the drum for a production freeze. Yesterday’s meeting of oil producers Saudi, Russia, Qatar and Venezuela yielded nothing except the affirmation that they are not willing to cut production. Today focus shifts to Iran, and confirmation of their intent to keep increasing production.

The chart below is based on Iran boosting production back to pre-sanction levels of 3.6 million barrels per day by the end of this year – a seemingly realistic expectation. On this basis, global inventories should rise above 3.4 billion barrels by year-end.

(Click to enlarge) Related: Oil Price Volatility Off The Charts

Kuwait has joined yesterday’s four-country production freeze, saying it welcomes the deal. It says it will freeze production at 3 million bpd; this is the volume from direct communications in the latest OPEC report. If we were to go by production reported by secondary sources, their volume is at a much lesser 2.745 million bpd. If we use the more reliable secondary source, then Kuwait is willing to freeze production at a level over 9 percent higher than current output. This sounds similar to Iran’s commitment; it is willing to freeze production after it has ramped up again to pre-sanction levels.

In terms of production and exports, Kuwait is a much bigger player than Qatar. According to our ClipperData, Kuwaiti crude loadings last year averaged 1.8 million barrels per day. In terms of its recipients, South Korea was the most popular destination (18 percent), followed by China (14 percent), India and Japan (both 13 percent). The U.S. was the fifth largest destination for Kuwaiti barrels, receiving over 200,000 bpd.

 

Related: Would A Chesapeake Bankruptcy Boost Natural Gas Prices

The graphic below is from Rystad Energy, and highlights how Saudi Arabia and Russia’s government income has been most detrimentally impacted by lower oil prices. This shouldn’t be too surprising, given they are the two largest crude exporters in the world. Rystad projects Saudi’s income for this year is set to be $250 billion lower than 2014. Russia’s income is projected to have dropped by $150 billion over the same period; lesser downside is due to a weakening Ruble offsetting some of the oil price drop. Saudi’s currency, the Riyal, remains pegged.

It is interesting how smaller a portion the oil and gas sector makes up of Russia’s total income compared to Saudi. Despite oil and gas recently accounting for ~70 percent of Russia’s total export revenues, its economy is much more diversified than that of Saudi, also relying on mining, agriculture and industry.

(Click to enlarge) Related: Utilities Just Declared War On Solar

There have been a few bits of data today for us to get our teeth into; UK unemployment remained at 5.1 percent, a decade-low, but was expected to edge lower to 5 percent. Housing starts in the U.S. were weaker than expected, while building permits came in a smidge higher than expected at 1.202 million.

U.S. producer prices ticked higher in January, now only slightly negative year-on-year (-0.2 percent), while U.S. industrial production provided a welcome boost, increasing by 0.9 percent MoM, much better than expectations (of +0.4 percent). This means that although it remains negative on a year-over-year basis, it is now only down by -0.7 percent:

(Click to enlarge)

By Matt Smith

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