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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 Stimulated By Fed’s Inaction

Oil pipeline welding

Five hundred and twenty-two years after the Treaty of Tordesillas was signed, dividing Spain and Portugal, and crude is also in new territory today. As the gruesome twosome of supply concerns and a weaker dollar persist, both Brent and WTI are marching on in fifty-dollardom. Hark, here are five things to consider in oil markets today:

1) Saudi Arabia appears intent on plugging the hole in its budget deficit, and is pursuing a number of different methods to do so. Back in April, it raised funds for the first time in at least 15 years by creating a $10 billion loan facility; it is now looking to do its first international bond sale, raising as much as $15 billion.

It also plans to triple non-oil revenues over the next five years via the National Transformation Plan (NTP). The plan includes over 500 projects and initiatives, and is also aimed at reducing public sector salaries, cutting water and electricity subsidies, and implementing a ‘sin tax’ on tobacco and sugary drinks.

The kingdom is looking to offset its shrinking foreign exchange reserves; net foreign assets fell another 1.1 percent in April, now at $572 billion. Reserves fell by $115 billion last year, as Saudi’s budget deficit increased amid dwindling oil revenues. Related: Saudi Cabinet Green Lights $141B Oil Diversification Plan

(Click to enlarge)

2) We’ve had a number of bits of economic data to digest today; Eurozone GDP was revised up for Q1 to 0.6 percent versus the prior quarter (up 1.7 percent YoY), while India kept interest rates at 6.5 percent, as did Australia at 1.75 percent. German industrial production was better than expected, and Spain followed suit.

3) The charts below illustrate two things: that both Chinese and Indian demand growth for refined products are charging higher, but also that India is outpacing China. IEA sees Indian consumption in the first quarter at a record 4.35 million barrels per day. (Separately, OPEC’s last monthly report saw Indian demand at 4.56 million bpd for March, up 600,000 bpd year-on-year, and the 2nd highest level on record).

In the latest fiscal year, the country built 24 million new vehicles, and the government has committed to build 30 kilometers of new roads a day. IEA is comparatively less bullish on Chinese demand; it sees it rising at 3 percent in Q1 of this year, down from closer to 5 percent in 2015.

 

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4) Angola, OPEC member and currently the largest oil producer in Africa amid Nigerian issues, is investigating a $50 billion shortfall in Sonangal, the state-run oil company. If true, this would be devastating for an economy which has already turned to the IMF for a bailout. Angola is already heavily indebted to China, sending it the largest share of its crude exports amid escalating debt-for-oil deals. Related: Rebound In Oil Prices Changes Drillers’ Mindset

5) Finally, as a teaser for our ClipperView events tomorrow in Houston and Thursday in New York (there are a few spaces left – click here!), here is one of the charts we will be showing relating to insights into global floating storage.

The Port of Qingdao is the epicenter for Chinese teapot refineries, and as more teapots have been granted import licenses, greater volumes have headed to the port. Our ClipperData show imports into Qingdao are up by a third through the first five months of the year compared to 2015, averaging over 1.1 million bpd. As greater volumes of crude arrive, delays ensue.

(Click to enlarge)

By Matt Smith

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