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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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Oil Chugs Higher But Slips On Gasoline Build

Offshore Oil Rig

One hundred and seventy-two years after Stuart Perry patented the gasoline engine, and oil is chugging higher once more. As a decent crude draw was expected from the weekly EIA inventory report, and this week, the EIA numbers fall in line with API’s as the EIA reported a 4.2 million barrel draw, all in all, oil is hot to trot higher but a moderate gasoline build might spoil the fun. Hark, here are five things to consider in oil markets today.

1) We’ve had a sprinkle of economic data again out of Europe; the German Ifo business sentiment data contrasted with yesterday’s downbeat ZEW prints, coming in better than expected for both current conditions and its 6-month outlook. Housing data out of the U.S. has affirmed yesterday’s strong home sales numbers, with house prices rising 0.7 percent MoM in March, more than expected.

2) Someone was asking about this last week, so I thought I would refresh the chart. Since the beginning of last year, the API has been pretty good at directionally predicting the EIA’s crude stock change – getting it right over 80 percent of the time. In terms of magnitude, it is a little less accurate – it has missed by an average of 2 million barrels each week. This difference is basically the noise that is generated betwixt voluntary and required reporting.

3) The chart below is from a piece by the always-engaging @liamdenning, highlighting how the share of output from ‘Big Oil’ has dropped below 9 percent of global supply, as independent E&P companies (think: shale producers) and NOCs such as Saudi Aramco ramp up production amid a battle for market share. Big oil’s share of global supply has been dropping for a good number of years: Related: The Biggest Winner Of The Oil Bust: Interview With Aeromexico

 

(Click to enlarge)

4) As the drumbeat slowly starts to build ahead of the Federal Reserve’s meeting next month, rising expectations for an interest rate hike is swiftly being priced into a strengthening dollar, and reverberating around commodityland™. As the graphic below illustrates, both precious and industrial metals have sold off strongly, while crude prices are holding up for now – buoyed by recent supply outages.

Speculative net-long positions in WTI are just shy of their highest level in a year; should the dollar continue to rise and supply outages be unwound, the crude complex should play catch-up to its other commodity comrades:

(Click to enlarge) Related: BP Faces Setback In World’s Largest Unexplored Oil Basin

5) Finally, supply outages in Nigeria are occurring at the same time that U.S. imports of Nigerian crude are at their strongest since April 2013. The East Coast (PADD1) continues to receive the lion’s share of deliveries, with seven different grades arriving so far this month – including the troubled Qua Iboe, Forcados and Bonny condensate. The Gulf Coast (PADD3) has also received two deliveries this month – one being Escravos, the fourth Nigerian crude grade seeing supply complications due to both unplanned outages and sabotage.

By Matt Smith

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