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Matt Smith

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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 Tumble As Dollar Reaches One Year High

As the U.S. dollar pushes on to the highest level in a year, crude is correspondingly getting crushed today. While some may suspect the oil sell-off is due to a lack of confidence in an OPEC production cut at the end of the month, the reality is that the gale-force headwinds provided by a super-strong dollar are too much to take. Hark, here are five things to consider in oil markets today:

1) While dollar strength explains today's sell-off, the chart below presents a simple but solid argument for the weakness in crude over the last two years: rising OPEC production.

And despite the OPEC meeting looming (hark, two weeks and counting down), OPEC producers are continuing to put a record amount of oil onto the market. As we discussed on Friday, Iranian exports have clambered above 3 million barrels per day for the first time since sanctions were lifted - although we suggest this could be driven by floating storage being drawn down as much as it is by increasing output.

That said, Iranian President Hassan Rouhani formally opened the West Karoun oil fields over the weekend, which are said to have swiftly increased production to 250,000 bpd. Rouhani also expressed oil production west of Karoun must reach one million barrels per day. Doesn't sound like Iran is cutting any time soon.

(Click to enlarge)

2) While much is being made of record production and exports from OPEC, it should also be noted that deliveries to Asia are also at a record pace.

(Click to enlarge)

3) Bearishness has shown up with a vengeance in financial positioning. The latest ICE data show that hedge funds cut their net long positions by 80 million barrels to 266 million bbls last week, with long positions shrinking 24mn bbls, and shorts increasing by 56mn bbls. CFTC data has been delayed due to Veterans' Day.

(Click to enlarge)

4) The graphic below is from a WSJ piece today which highlights that although electric vehicles are growing, they will still account for less than 1 percent of the 83 million total light vehicle sales expected this year.

Progress is lumpy, however. While the U.S., China and Europe are seeing strong investment, Japan has slashed its targets for electric vehicles and charging stations in half - to one million of each by 2020.

(Click to enlarge)

By Matt Smith

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Leave a comment
  • Jack Ma on November 14 2016 said:
    Oil is not tumbling really in fact it is up.

    Are you sure you posted the right article?

    Warmest regards

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