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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 Markets On Edge About Fed’s Decision Tomorrow

Today is national cat herder day, which seems appropriate for the crude complex, as prices are wandering all over the place. Markets remain distracted by the impending Federal Reserve interest rate hike decision tomorrow, and the potential volatility it will wield on broader markets such as currencies…and ergo, crude.

Meanwhile, the potential catnip for a rally in the crude complex comes in the form of extreme short positions, which could kick off a bout of short-covering at any point. All the while, oversupply fears provide the backdrop for the current price environment.

Today’s quote of the day comes from Nigeria’s oil minister Emmanuel Kachikwu, who believes (hopes?) an emergency OPEC meeting is in the cards. He says ‘it is expected that the upward trend in oil prices will be seen by February next year. If it does not happen, it is clear that OPEC will need to have a very urgent meeting’. Hum dee dum, we shall see.

In terms of overnight economic data, key releases came from Europe in the form of UK inflation – which clambered back into positive territory after two consecutive deflationary months – while we also had the ZEW (aka German sentiment data). Both ZEW current conditions and forward expectations for Germany came in better than expected, while overall Eurozone forward expectations rebounded from last month but were below consensus.

India’s November trade data has yielded a lesser deficit than the prior month, as both imports and exports shrank. Meanwhile, industrial production in Russia continues to contract, down 3.5 percent YoY. Onto the U.S., and inflation data came in just above consensus at 0.5 percent (YoY), the highest level since January:

US inflation, YoY % (source: investing.com)

As history repeats itself once more, the elastic band of short positions has been stretched to an extreme – just as we saw at the price lows in March and August – and accordingly we are seeing prices trying to snap back on a bout of short-covering and profit-taking. Related: LNG Glut Worse Than Oil

 

An article today discusses how Saudi Arabia has increased exports to Asia in the last month or so, due to rising demand spurred on by attractive pricing and strong margins. Our #ClipperData affirms that ~4.2 million barrels per day have been sent from Saudi to Asia so far this year, with Japan being the leading recipient, followed by China, South Korea and India. These four countries account for ~80 percent of Asian receipts: Related: Is The Russian-Turkish Standoff An Opportunity For The West?

Saudi Arabia Crude Exports to Asia (source: ClipperData)

Finally, EIA has added four countries to its global assessment of shale oil and natural gas reserves. The addition of Chad, Kazakhstan, Oman, and the UAE has resulted in a 13 percent increase in its global estimate of shale oil reserves, and a 4 percent increase for shale gas. Related: Government Influence Over Asset Prices Growing

This expands EIA’s coverage to 46 countries, with technically recoverable resources of 419 billion barrels of shale oil and 7,576 trillion cubic feet of shale gas. Only four countries, however, are producing shale oil and natural gas on a commercial scale: the US, Canada, China, and Argentina.

By Matt Smith

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