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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 Slip As Stronger Dollar Outweighs Bullish IEA Data

One hundred and sixty-nine years after William Clayton invented the odometer, and the oil market is trying to continue its journey higher. Despite a bullish-tilted monthly report from the IEA, the speed bumps of a stronger dollar are slowing crude’s progress today. Hark, here are six things to consider in today’s oil market:

1) The IEA’s oil market report is providing the impetus for a rally today, as it sees the global oil market ‘heading towards balance‘. It saw surprisingly strong demand in Q1 at 1.4 million barrels per day, leading to February seeing the first monthly draw to OECD stocks in a year.

2) The agency projects that oversupply will be at 1.3 million bpd through the first half of this year (down from last month’s projection of 1.5 million bpd), as demand has been stronger than expected from China, India and Russia. It maintains its demand growth expectation for this year at 1.2 million bpd, but sees oversupply dropping to only 200,000 bpd in the latter half of the year. Looking ahead, it also sees India surpassing China as the leading source of oil demand growth. This year it pegs demand growth for both at 350,000 bpd: Related: Russian Oil Executives Not Optimistic About Oil Prices

(Click to enlarge)

3) The IEA draws specific attention to lower production in Venezuela, Nigeria and Libya; our ClipperData show that loadings across the three oil producers are down 5 percent for the first four months of the year compared to 2015: Related: Can Saudi Arabia Really Break Its Dependence On Oil?

(Click to enlarge)

4) In terms of economic data flow, Eurozone industrial production has come in below par (-0.8 percent MoM, now only up +0.2 percent YoY). Indian industrial production showed a huge miss, up 0.1 percent YoY, versus consensus for +2.5 percent. Indian inflation rebounded on the prior month to 5.39 percent (YoY), while the Bank of England were unanimous in keeping interest rates at 0.5 percent (for seven years and counting…). Related: Libya’s Oil Exports Could To Go To 0 bpd Within One Month

Onto the U.S., and weekly jobless claims had a humongously humongous miss, coming in at 294,000, some 24,000 higher (aka worse) than expectations. This abruptly puts jobless claims at a one-year high, affirming the weak nonfarm payrolls number we saw last week for April – in itself, the slowest pace of job creation since last September.

5) The EIA’s short term energy outlook from earlier in the week highlighted that U.S. gasoline demand is on target to reach a record this year, with April’s consumption up to 9.46 million bpd – some 320,000 bpd higher than April of last year.

While lower gasoline prices are spurring on higher consumption, we are also seeing a significant shift towards utility vehicles amid the lower price environment. As the chart below illustrates, Ford pick-up truck sales are higher than those of the Toyota Camry and Corolla combined, as consumers choose horsepower over fuel efficiency:

6) A press release from IHS states that the significant inventories of drilled but uncompleted wells (DUCs) in the U.S. will have a limited impact on U.S. production growth. The research group forecasts that there are still approximately 2,750 remaining DUCs in the US, which could boost production by ~380,000 bpd by September next year.

IHS concludes that while this volume is relatively small, it will help oil and gas operators to benefit from capital efficiency gains; to convert all existing DUCs to production would cost $11.5 billion, which is savings of ~40 percent from what it would cost to drill and complete a new well.

By Matt Smith

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