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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 Market Swings Ahead Of EIA Inventory Report

The frenetic price swings continue in the oil market today, with oil prices push higher ahead of the EIA’s weekly inventory report, further buoyed by dollar weakness, before falling back again. Hark, here are five things to consider in oil markets today:

1) Not only are we seeing the rig count showing signs of life, but we are also seeing action on the oil and gas equity issuance front, and also in terms of M&A. In recent days, Marathon Oil Corp. has announced it is buying PayRock Energy Holdings LLC for $888 million. The acquisition of PayRock strengthens Marathon’s hand in an area of Oklahoma called the STACK (Sooner Trend, Anadarko Basin, Canadian and Kingfisher counties), gaining rights to drill 61,000 acres, where it is said that oil production is still profitable at $45/bbl.

In addition, QEP Resources Inc announced yesterday that it is spending $600 million to buy 9,400 acres in the Permian Basin. Combine this purchase with Newfield Exploration’s acquisition of 42,000 acres in the STACK from Chesapeake Energy last month for $470 million, and it would appear that an oil price back in the vicinity of fifty dollardom is stirring up activity in the oil patch once more.

2) Signs of product demand weakness are appearing both in the near-term and on the horizon this week; first we have had Wood Mackenzie projecting that electric cars could cut gasoline demand by as much as 20 percent over the next two decades. (Given the pace of technological development, a drop of such a magnitude doesn’t seem beyond the realms of possibility).

Meanwhile, in the present, ongoing signs of slowing from the U.S. industrial sector are manifesting themselves in trucking stocks. The trucking industry has been dealing with overcapacity and weaker demand for the last year and a half; continued deterioration in industrial production is only exacerbating this. Industrial production has now declined on a year-over-year basis for nine consecutive months, and lower forward guidance by trucking companies means their share prices are getting clobbered. While gasoline demand is set to be dented over the longer term, diesel demand is likely to be under pressure in the present.

3) Over the last year and half we have seen increasing flows of both Arab Gulf and West African crude to the U.S., rising to over 2.3 million barrels per day last month – the strongest level of imports since April 2014. Related: To Avoid The Oil Curse, Russia Needs To Take A Leaf Out Of The Saudi’s Book

While flows from Saudi Arabia and Nigeria lead the charge from the respective loading regions, we have seen pockets of strength elsewhere in recent months. Increasing volumes of heavy sweet Chadian Doba have been arriving on both the East and Gulf Coasts (hark, 130,000 bpd last month), while medium sour Omanian crude has been making its way to the U.S. West Coast for three consecutive months after a near-three year hiatus.

(Click to enlarge)

Arab Gulf and West African crude oil deliveries to the US (source: ClipperData)

4) As Brexit decision day is nearly upon us (stay strong, my friends – it’s nearly over), the chart below highlights how both the bookies and the S&P500 point to a ‘remain’ vote. Odds were as low as 63 percent last week, but have since risen to a 79 percent likelihood for staying. Seems a good bet.

(Click to enlarge)

5) Finally, the chart below illustrates the crazy pace of Chinese oil stockpiling. U.S. inventories at a nine-decade high pale in comparison to China’s 350+ million barrel accumulation of crude stocks since mid-2014.

(Click to enlarge)

By Matt Smith via ClipperData

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