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Oil Price Slump Takes Its Toll On Emerging Markets

Friday, February 5, 2016

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. Spending and dividends exceed cash flow

 

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- BP reported a $6.5 billion net loss for 2015, and announced another 3,000 job cuts. It was the worst result in decades for the British oil giant.
- Worrying for the company is the fact that underlying cash flow ($20 billion) does not cover both spending ($19 billion) and dividends ($6.7 billion).
- In 2014, BP only covered spending plus shareholder payouts by selling off assets. Since then it has improved cash flow by getting rid of share buybacks.
- Still, it has had to take on debt in 2015 to keep the dividends in place. Its debt ratio jumped from 16.7 to 21 percent over the course of 2015.
- ConocoPhillips became the first major U.S. oil company to reduce its dividend, when it announced on Feb. 4 that its payout would drop by more than 65 percent. But it may not be the last.

2. Gasoline demand grew briskly in 2015. It recently slowed

 

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- The two charts above from Reuters show that the collapse in oil prices spurred strong demand for gasoline in the United States as consumers took to the roads.
- U.S. vehicle sales in 2015 hit a record 17.5 million, a 5.7 percent jump from 2014. Demand for SUVs and other less efficient light trucks surged.
- Gasoline demand growth neared its highest level since well before the financial crisis in 2008.
- But in a warning sign for the economy, 2016 started off on a much softer note (second chart).
- January gasoline supplied over a 4-week average was well below 2015 figures for the same time of year, and also slightly below the ten-year average. The IEA, EIA, and OPEC have all predicted that oil demand growth would be lighter in 2016, but there is quite a bit of uncertainty as to how healthy the economy is right now. A sudden downturn in gasoline demand highlights those concerns.

3. Still profitable to drill somewhere

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- Parts of the Permian Basin and the Eagle Ford formation are still profitable at $30 per barrel, according to Bloomberg Intelligence.
- DeWitt County,…




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