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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 Tank Ahead Of Inventory Reports

Oil Prices Tank Ahead Of Inventory Reports

One hundred and six years after the birth of Luise Rainer, and oil continues in its enthralling escapade – trying to muster a bounce for the first time in 2016 and escape the clutches of twenty-dollardom.

The crude complex is pushing higher for now, buoyed by a brighter mood in U.S. and European equity markets – although Asia wobbled once more last night. As US earnings season gets underway, we have had a few tidbits of data from across the globe.

A worrisome data point has come out of the stalwart of emerging markets, India, with industrial production in November dropping year-on-year for the first time since October 2014. Indian inflation was pretty much in line with consensus at 5.61 percent YoY, edging higher for a fourth consecutive month, while November UK industrial production also disappointed – negative on the prior month, and up just 0.7 percent YoY.

Attention shifts back to the crude complex, with the EIA’s monthly Short Term Energy Outlook out today, as well as weekly API data. Tonight we get Chinese trade data…you have been warned. Related: As Rig Count Plunges, Has U.S. Oil Reached Its Capitulation Point?

India industrial production, % YoY (source: investing.com)

As oil prices charge towards the roaring twenties, the financial wherewithal of U.S. oil producers comes under increasing scrutiny. The chart (left) illustrates how long-term debt for North American producers
was at a lofty $353 billion in 2015, with an interesting article from the Wall Street Journal today highlighting three nutty stats on this front:

1) North American oil and gas producers are losing nearly $2 billion every week at current prices
2) U.S. producers are expected to cut their budgets this year by 51 percent from 2014 levels to $89.6 billion
3) Oil companies including Sandridge Energy, Energy XXI, and Halcon Resources used more than 40 percent of Q3’s revenues to cover interest payments on their loans Related: Crashing Oil Prices And Dropping Rig Count Take Their Toll On U.S. Output

From one extreme to the other, while oil producers feel the greatest pain, the U.S. consumer is experiencing the biggest benefit. With retail gasoline prices below $2/gallon on the national average for the first time since 2009, US consumers are using this price drop to their advantage and continuing to buy fuel efficient cars buying up pickup trucks and SUVs; they are outselling cars by the largest margin since 2005. This shift has caused the average fuel economy of vehicles sold in the U.S. to drop in 2015 for the first time since at least 2008:

The EIA released its drilling productivity report yesterday. It projects that oil production from key U.S. shale basins drops by 116,000 bpd next month, led by losses from Eagle Ford, Bakken, and Niobrara. Based on EIA’s data, Eagle Ford oil production will have fallen 33 percent from its peak last March of last year to 1,145,000 bpd in February. Nonetheless, the Permian basin continues to tick higher, holding above 2 million bpd:

Doom and gloom persist today in the crude complex; BP has just announced 4,000 job losses, while Petrobras is slashing its five-year investment plan by $32 billion. Nigeria’s oil minister stoked speculation of an emergency OPEC meeting, saying a ‘couple’ of members had requested one. UAE, however, was quick to quash this rumor. Related: Was Iran’s Claim About Ramping Up Oil Production Just Hype?

Nigeria’s crude exports for 2015 are below, courtesy of our ClipperData. Europe is the largest recipient of Nigerian crude, followed by South Asia, then Latin America. These three regions account for nearly three quarters of Nigeria’s exports. Nearly 5 percent of Nigeria’s exports made their way to North America in 2015.

Nigerian crude exports (source: ClipperData)

By Matt Smith

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