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Why OPEC’s Decision To Delay Makes Sense

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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 Inch Up Over U.S Stockpile Draw

After a quiet first few days of the week on the data front, Wednesday has roared in like a lion, bringing preliminary global manufacturing numbers with it. China kicked off things overnight – and poorly to boot – as the preliminary Caixin PMI hit a 78-month low, coming in at 47.0 versus 47.5 expected. The Chief Economist at Caixin, however, had some words of comfort:

‘Overall, the fundamentals are good. The principle reason for the weakening of manufacturing is tied to previous changes in factors related to external demand and prices. Fiscal expenditures surged in August, pointing to stronger government efforts on the fiscal policy front’.

This relatively upbeat assessment means we could well see stimulus efforts filtering through to the manufacturing sector in the coming months. Related: There Are 800 Fossil Fuel Subsidies Around The World

Caixin Purchasing Managers Index, 2008 – present (source: Markit Economics)

Shifting to Europe, and the preliminary print for the Eurozone came in smack-dab-inline with consensus at 52.0. Interestingly, we saw a flip-flop of recent trends; Germany’s print came in shy of expectations, while France saw a considerable beat, hopscotching back into expansionary terrain. Meanwhile, the preliminary services print on the aggregate for the Eurozone was shy of expectations. In terms of directions for the individual Eurozone countries, it seems a case of ‘when you come to a fork in the road, take it‘.

Moving on to oil-specific data, and a minor draw is expected to crude inventories from today’s weekly EIA report, while modest builds of approx. 1 million barrels are expected for the products. Last night’s API report yielded a rather large 3.7 million barrel draw, pointing to a larger draw for crude from this morning’s report. I’ll stick my neck out and say it’s going to be less than both last night’s API report of -3.7mb, and less than last week’s -2.1mb. And if I’m wrong….’I never said most of the things I said‘. Related: The Best Presidential Candidate For Nuclear Power?

Next up, in a great example of how ‘the future ain’t what it used to be‘, Total has announced it is planning another round of cost cuts in the coming years to defend its dividend. It is cutting capex by $3 billion by 2017, which means delays to projects in Australia, Norway, and Italy. Not only does it predict oil prices to remain low, targeting a breakeven of $45 from its projects by 2019, but it says ‘everybody’ in the shale industry is losing money.

source: @JavierBlas2

Having a bad week? Qatar’s sovereign wealth fund is having a worse one. It is the largest investor in Glencore, and the third-largest owner of Volkswagen’s ordinary stock (and the biggest holder of VW’s preferred shares). Therefore estimated losses in the last two days are projected at $4.6 billion. Ouch. That said, prices in VW stocks are trying to muster a rebound today. Related: Midweek Sector Update: Iran Holding Up Its End Of The Bargain, So Far

Finally, ‘it’s like déjà vu all over again‘ as retail diesel prices have just dropped below $2.50/gallon on the national average. This would be for the first time in over six years, putting us back to a level we last saw in the Great Recession:

(Click to enlarge)

By Matt Smith

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