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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 Seesaw On Declining U.S. Production, Increasing Stockpiles

One hundred and ninety-nine years after the first commercial steamboat route from (the mighty!) Louisville to New Orleans was opened, and the crude complex appears to be running out of steam. Here are nine things to consider today:

1) We have had a mixed bag of data out overnight. Things were kicked off by a weaker-than-expected Chinese services print from Caixin, although a gradual pace of growth was still seen (51.2 vs. 52.6 consensus). Eurozone services, however, came in better than expected on the aggregate – buoyed by Germany and Italy, kept in check by France.

Brazilian GDP in Q4 dropped by 5.9 percent YoY. This meant GDP in 2015 shrank by 3.8 percent, the steepest annual decline since 1990:

(Click to enlarge) Related: In Risky Move Wall St. Backs Shale With Nearly $10 Billion In Equity

Brazil Q4 GDP, % YoY (source: investing.com)

2) It is Nonfarm Friday Eve, meaning shenanigans await with the official U.S. unemployment report tomorrow. Weekly jobless claims just yielded a print of 278,000 – worse than the 271,000 expected. Tomorrow’s consensus estimate of ~190,000 jobs is still in the mix – along with the usual subsequent large revision to this number.

3) Saudi has announced its official selling price (OSP) for Arab Light into Asia for April is at a lesser discount of 75 cents to Oman/Dubai versus $1 in March. This lesser discount is likely as much to do with signs of stronger demand, as well as a reflection of a widening in the Brent-Dubai spread, as opposed to Saudi backing off from a pricing battle. As we have mentioned recently, Chinese waterborne imports in February were exceptionally strong – the highest level in our ClipperData records, up over 20 percent on the prior month (although January was exceptionally weak, to be fair).

4) While we see a February rebound from China, India continues to show strength. Fuel consumption rose nearly 13 percent year-on-year in January, its fastest pace in three months. We accordingly have been seeing imports increasing on a year-over-year basis too:

5) While yesterday’s whopping crude build of 10.4 million barrels grabbed the headlines, and robust gasoline demand – and the subsequent 1.5 million barrel draw it delivered – received all the accolades, the distillate piece of the pie should not be ignored. Related: The U.S. Still Dominates World Oil Prices

After being below the five-year range in September 2014, inventories have gradually pushed higher over the last 18 months to now finally clamber above this range. Distillate stocks reached a record of 186 million barrels in December 1982 (think: E.T., Tootsie #1 at the movies). Inventories generally bottom out each year at the end of winter (after peak demand), building through the summer as refineries go full-tilt to meet higher gasoline demand for summer driving season. Should we see a similar build to inventories as we saw last year, we should well be testing record inventory levels in the fall.

6) As we mentioned yesterday, Iran really isn’t seeing much traction in terms of rising exports, according to our data. This has again been affirmed by Iran itself, who says it is looking to increase exports this month from 1.5 million barrels per day to 1.65 million bpd, driven by increasing exports into Europe.

7) The chart below shows – in billions – how much exposure the big four U.S. banks have in terms of credit to the energy sector. While this exposure is only 1.4 – 3.5 percent of their total loan books, by including lines of credit that are yet to be tapped (aka unfunded), this exposure is two-and-a-half times larger, at a princely sum of $186 billion:

8) According to Bloomberg New Energy Finance, nearly 100 million households worldwide may be powered by solar panels by 2020. Here are some big numbers: there are currently ~1.2 billion people worldwide who do not have access to electricity, with another billion have unreliable access. 95 percent of them are in sub-Saharan Africa and Asia. Related: Australia’s $54 Billion Gas Project Starts Shipping

The off-grid solar market is expected to grow from $700 million this year to $3.1 billion by the end of the decade, as India leads the charge in Asia; Kenya, Tanzania and Ethiopia are leading it in Africa. As the charts below illustrate, nearly $27 billion was spent last year on off-grid lighting in the two continents:

(Click to enlarge)

9) Finally….R.I.P. Aubrey McClendon.

By Matt Smith

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