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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 Gains As Dollar Loses Against Euro

Thirty-nine years after Fleetwood Mac’s second album was released, and ‘rumors’ of a production cut and fears of a worsening US economy are pushing and prodding the crude market around.

Commodities are also getting whipsawed around by currency moves. As the U.S. dollar continues to weaken due to growing pessimism about the U.S. economy, crude is finding some support. After a speech by ECB President Mario Draghi earlier today lifted the euro to a three-month high, another round of poor data out of the U.S. is putting further downward pressure on the dollar.

Weekly jobless claims came in worse than expected, at 285.000 versus 280.000 expected, while preliminary U.S. productivity data was also below par (i.e., not in good way like in golf). Weaker jobless claims are stoking concerns ahead of Nonfarm Friday tomorrow, and the official monthly unemployment report. Related: Japan And Iran Could Keep a Lid On Oil Price Rally

According to Bloomberg Intelligence, some parts of the Eagle Ford and Permian Basins in Texas remain profitable at current price levels. The biggest producing areas in Texas are also the lowest-cost counties: DeWitt, Midland, Martin and Reeves have a combined output of 430,000 barrels per day.

So while wells in the higher-cost counties such as Dimmitt have dropped precipitously, drilling activity has increased in the lower cost ones, such as DeWitt – rising 77 percent from Q1 last year to Q3. Yet even in DeWitt, costs vary wildly: ~45 percent of wells drilled in 2014 would have been profitable with oil prices below $20, while 5 percent needed a price of over $70.

(Click to enlarge)

This latest study from the EIA is a great overview of U.S. fuel consumption on the East and Gulf coasts. The East Coast (aka, PADD1) consumed 3.13 million barrels of gasoline in 2014, which is 35 percent of total US demand. The Gulf Coast (aka, PADD3) consumed about half that – 1.45 million bpd, some 16 percent of the US total. Related: Fundamentals For Oil Still Bearish, But Sentiment Is Shifting

In terms of production, the Gulf Coast accounts for over half of US refining capacity, with 52 refineries producing 9.3 million bpd in 2014, while the East Coast only meets 20 percent of its own needs via nine refineries, with pipeline flows, waterborne deliveries from the Gulf Coast, and foreign cargoes accounting for the rest.

(Click to enlarge)

While optimism abounds for rising Iranian production, civil war in Libya means both its oil production and revenues continue to deteriorate. In the last few years, two rival factions have been fighting for control of Libya and its assets (oil accounts for 95 percent of state revenues). However, now the two rivals groups are trying to form a government amid increased attacks from the Islamic State.

Related: Iran Looking To Ramp Up More Than Just Oil Production

As the chart below illustrates, revenues from oil in 2014 were a quarter of what they were two years prior, given both the drop in oil prices and Libya’s drop in production. Given both were again lower last year, revenues have surely been considerably bleaker. Our ClipperData show that waterborne crude exports last year were a quarter of what they were in 2013.

Finally, Saudi Arabia, the world’s largest crude exporter, has apparently cut its price for Arab Light into Asia for March. While some will interpret this as Saudi turning up the heat in the battle for market share in Asia, it more likely indicative of a lack of demand from the region.

According to our Clipperhttp://clipperdata.com/Data, Asia was the destination for 60 percent of Saudi’s crude exports last year. In terms of individual countries, the US was the most popular destination for Saudi barrels, accounting for 16 percent of exports. Japan was second (15 percent), then China (13 percent), India (10 percent), then South Korea (10 percent).

By Matt Smith

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