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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 Up As Dollar Drops And Gasoline Draws

Twenty-three years to the day after Charlie Brown hit his first home run in the Peanuts comic strip, and crude prices are swinging for the fences ahead of the weekly inventory report, rallying strongly. The market appears to be focusing on an expected draw to gasoline stocks and a lesser build to crude than consensus. All the while, prices are being boosted by a weaker dollar (h/t J Yellen). Hark, here are seven things to consider re crude oscillations today:

1) It’s fairly light on the economic data front today, as the drumbeat builds to the double-header that is April Fool’s day and nonfarm payrolls on Friday. We had preliminary Japanese industrial production overnight, which, if affirmed by the final number in mid-April, would be the worst print in nearly five years.

Across to Europe, and we have had various gauges of sentiment from the Eurozone; the Business and Consumer Survey – a composite of the various pieces – has come in below consensus, and lower for a third consecutive month.

2) As for the U.S., and we have had the thunder-stealer from Friday’s nonfarm payrolls this morning with the ADP report. It showed 200,000 jobs were created last month, just above consensus (of 194.000), bolstering expectations ahead of aforementioned April Fool’s day.

3) From one thunder-stealer to another, the API report yielded a 2.6 million barrel build to crude stocks and a 1.9 million barrel draw to gasoline. Since the beginning of last year, although the API report has been directionally correct 86 percent of the time for crude stocks in the EIA report, it has differed by over a million barrels 60 percent of the time, and by over three million barrels 24 percent of the time. Hum dee dum.

(Click to enlarge)

4) In the last week we have had quarterly reports from the big three Chinese oil and gas companies, and all three are singing from the same hymn-sheet. In a similar fashion to oil and gas producers worldwide, they are tightening their belts, cutting capital expenditures by a combined 8 percent this year, after already cutting by 30 percent last year.

(Click to enlarge)

All three expect crude oil production to drop this year amid cost-cutting. Only Cnooc saw production increasing last year, but this is set to reverse. According the latest quarterly reports, their combined output, including international ventures, is expected to drop by 2.2 percent to 6.6 million bpd next year.

5) Yet despite falling profits in the last quarter compared to last year (32 percent at Sinopec, 66 percent at Cnooc, and 67 billion at PetroChina), there is a hesitancy in laying off workers. While Sinopec has not announced any job cuts since late 2014, PetroChina, the leading producer, continues to employ some 535,000 workers.

To put this in context, PetroChina has the equivalent operating revenue of Exxon Mobil (at ~$260 billion), while Exxon’s net profit last year was three times that of PetroChina at $16 billion. PetroChina employs 535,000 workers…Exxon employs 75,000.

(Click to enlarge)

6) An interesting piece from the EIA today takes a look at upstream costs relating to well drilling and completion. Per-well costs peaked in 2012 at their highest point in the last decade, but have since declined given lesser drilling activity and increased drilling efficiency. Accordingly, per-well costs last year were 25 percent-30 percent below the 2012 peak:

(Click to enlarge)

7) Finally, this piece on CNN Money today about Indian crude oil imports is powered by our ClipperData. As the chart below illustrates, OPEC is a key supplier to India – accounting for 86 percent of its imports last year. As Indian crude production remains in check, and as its demand for oil continues to ramp up, its dependence upon OPEC is only likely to increase.

(Click to enlarge)

By Matt Smith

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