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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 Falls Back To Two Month Lows On Product Glut

As broader markets steady themselves after Friday’s failed coup attempt in Turkey, the crude complex is starting the week focusing on strong supply, potentially faltering demand to sell off strongly. Hark, here are five things to consider in oil markets today:

1) This morning’s post out on RBN Energy is powered by our ClipperData, digging into the Caribbean crude storage market. The Caribbean has nine crude and refined product terminals, with capacity of over 140 million barrels.

PdVSA, Venezuela’s state-run oil company, accounts for the majority of the terminals located in the southern Caribbean. It operates a number of blending and storage operations offshore Venezuela; the chart below illustrates how crude flows into Curacao are dominated by Venezuela. Imports from other regions such as the U.S. Gulf and West Africa are reflective of the need for Venezuela’s heavy crude to be blended with lighter crude or diluent to be more easily transported.

(Click to enlarge)

2) Developments on the Libyan front continue apace. The latest twist and turn has come in the form of the closure of the Hariga oil terminal due to unpaid salaries; workers have apparently not been paid for five months. Our ClipperData show that the Hariga port has been the source of ~40 percent of the country’s exports so far this year.

3) While South America’s leading oil producers Venezuela and Brazil are seeing their economies spiraling out of control due to lower oil prices, Colombia’s economy is showing relative strength. Colombia produces around one million barrels per day, exporting ~650,000 bpd so far this year.

Our ClipperData show that the vast majority of these flows are heading to nearby destinations – the U.S., Panama, and into storage in the Caribbean. Even though Colombian crude exports are down on last year’s volumes as decreased drilling activity starts to take hold, a tenfold rise in foreign investment over the last decade means sectors such as agriculture, construction and tourism are helping to offset the weakness in the oil and gas industry.

(Click to enlarge)

4) The chart below is from the EIA, showing how the financing gap for 39 U.S. oil companies operating onshore fields is improving, as capex falls faster than operating cash flow. As companies reduce their budgets more quickly, the rebound in oil prices this year has helped to improve the balance between capex and cash flow, helping to ease financial strains. The 39 companies included in this analysis account for ~30 percent of lower 48 U.S. production. Related: Why Oil Prices Might Never Recover

(Click to enlarge)

5) Finally, the chart below shows how oil producers have been using the recent oil rally as an opportunity to hedge future production. After 85 North American oil and gas producers have gone bankrupt since the beginning of last year, producers are choosing to lock in price certainty this year, with increased hedging activity rising by nearly 30 percent:

(Click to enlarge)

By Matt Smith

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