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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 Under Pressure As Global Supply Outages Diminish

One hundred and forty-three years after Levi Strauss began marketing blue jeans with copper rivets, and the oil market is trying to make strides higher once again on increasing global supply outages, but faces downward pressure from extremely high global crude stockpiles and the resumption of major Canadian oil sands production. Here are five things to consider on this final trading day of the week:

1) While Nigeria’s Qua Iboe crude grade remains under force majeure, Exxon has confirmed its production is still ongoing at its oil terminal. We discussed earlier in the week how we’ve been seeing Nigerian loadings holding up, despite estimates that production has dropped precipitously due to outages and sabotage.

While we are seeing volumes of Escravos and Forcados grade loadings falling off, Qua Iboe loadings are holding up – affirming Exxon’s rhetoric. Our ClipperData show crude loadings of Qua Iboe since the beginning of last year have averaged 317,000 bpd, close to this level so far this month: Related: Shareholders Outraged At BP, Shell CEO Pay Packages

2) There’s not too much on the economic data front today; Brazilian inflation remains sky-high, rising to +9.62 percent mid-month (shy of Feb’s 12-year high of 10.84 percent), while the Eurozone’s current account rose to EUR 27.3 billion in March (a good thing). The main data release of note from the US has been existing home sales, which have come in better than expected at +1.7 percent MoM.

3) According to one of the lead operators in Iraq, production has probably peaked, and is set to come in shy of the country’s target over the coming years. According to Bloomberg, Iraq pumped a record 4.51 million barrels a day in January and 4.31 million in April. A target of 5 million bpd is very much dependent upon oil prices, according to its deputy oil minister; cuts in capex by the government this year may see output come up short.

As our ClipperData illustrates, Iraqi waterborne exports have been running at a frenetic pace over the last year as production has increased. Exports have averaged 3.1 million bpd over the last year, some 28 percent higher than the 12 months prior.

4) From foreign shores back to the U.S., and the below map from the EIA highlights how great the impact of U.S. shale has been. Natural gas-fired generation is set to surpass coal generation in the U.S. on an annual basis this year; it increased 19 percent in 2015, spurred on by low natural gas prices amid an abundance of supply. Related: What Does The Next OPEC Meeting Have In Store?

Moving forward, much of the capacity additions to natural gas-fired generation will be in the proximity of the Utica, Marcellus. Haynesville and Eagle Ford shale plays:

(Click to enlarge)

5) The theme of rising natural gas supply is not just a domestic issue. About half of long-term European natural gas contracts are linked to oil prices, historically tracking them fairly closely, But a combination of weak demand in Europe due to a mild winter, in combination with an oversupplied global LNG market, has caused pricing to detach. Brent crude prices have rallied 32 percent this year…front-month U.K. gas has dropped by 12 percent.

(Click to enlarge)

By Matt Smith

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