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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 Prices Crumble Ahead Of Earning Season

Crude is heading lower into the weekend as supply glut fears persist, while further endorsement of a sell-off is provided by a stronger dollar. Hark, here are seven things to consider in crude markets today:

1) While the latest OPEC monthly oil market report shows Iranian oil production at over 3.6 million barrels per day – up to pre-sanction levels – our ClipperData show a surprising drop in crude loadings in June after exports reached a post-sanction high of 2.6 million bpd in May. As our floating storage volumes show no material build in barrels last month, the excess must be finding its way into onshore storage it would seem.

2) According to Bloomberg Intelligence, there were 4,230 DUCs in the U.S. at the beginning of April – a number little changed from January. But as prices have clambered higher into forty dollardom in the second quarter, the tapping of these DUCs has been incentivized.

While Permian saw the biggest jump in DUCs in the first quarter (by 12 percent), it is also expected to lead the drop as prices become more accommodative. It is estimated that a price at $40 – $50 should clear the fracklog of DUCs in the Permian by the end of next year, while 70 percent of Eagle Ford’s DUCs are also expected to be cleared.

(Click to enlarge)

3) Japan is the world’s leading consumer of LNG, accounting for approximately 35 percent of global demand. Given its reliance on imports, it has entered into agreements to receive at least 1.46 billion metric tons from 2017 to 2040. The concern is that two-thirds of these contracts restrict the re-selling of these LNG volumes, and not only have they been agreed at higher prices, but all the volumes may not be needed.

Japan’s fair trade commission is investigating whether this restricted re-selling is impeding competition laws; if so, these existing contracts may be renegotiated, significantly boosting the buying power of Japanese LNG importers. It also would turn them into international sellers; after all, the country is forecast to have a surplus of LNG to the tune of 12.2 Bcm in 2017, 8.1 Bcm in 2018, and 8.6 Bcm in 2018.

(Click to enlarge)

4) While on the topic of natural gas, the chart below highlights how natural gas demand from the power generation sector has reached an all-time high this month amid scorching temperatures across key demand regions of the U.S. Related: China Cleaning Up Its Air With Natural Gas Vehicles

This heat has coincided with a tick lower in natural gas production, leading to a mere 34 Bcf injection from yesterday’s weekly storage report. Natural gas storage is now only at a 16 percent surplus to last year, after being 69 percent higher in March.

(Click to enlarge)

5) Schlumberger has followed hot on the heels of Halliburton in declaring that the only way is up for the U.S. oil patch. Signs of life from the rig count and hopes for increased drilling activity going forward is spurring on confidence in the oil services sector. Despite Schlumberger reporting a surprise $2.16 billion loss in Q2, better times are apparently ahead, as it looks to renegotiate contracts with oil prices recovering from lows earlier in the year.

6) This chart (via @CapEconUK) illustrates divergence at its best, as the flash UK composite PMI (manufacturing + services) heads south, while the FTSE charges higher. As markets try to weigh up the ramifications of a Brexit, the equity market seems to be considerably more optimistic than the current reality.

(Click to enlarge)

7) Finally, ClipperData’s Troy Vincent was out on CNBC India this week, discussing current oil prices and where they could be headed. You can see the clip / read part of the interview here.

By Matt Smith

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  • jerry chapman on July 28 2016 said:
    When this article was written crude was at 47 dollars a barrel. 5 days later crude is at 42.50 a barrel. yet all his points indicate a rise in crude. How misleading his facts are! also, he says the natural gas is "only" a surplus of 16% from last year. Surpluses lead to selling, not higher prices.
    Schlumberger and Halliburton HAVE to speak positive for Crude-its their business. Better to quote someone neutral than cheerleaders. "Better times are apparently ahead" Evidently not...

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