• 5 minutes Oil prices forecast
  • 8 minutes Nuclear Power Can Be Green – But At A Price
  • 11 minutes Projection Of Experts: Oil Prices Expected To Stay Anchored Around $65-70 Through 2023
  • 16 minutes Europe Slipping into Recession?
  • 14 hours U.S. Treasury Secretary Mnuchin Weighs Lifting Tariffs On China
  • 4 hours Socialists want to exorcise the O&G demon by 2030
  • 6 hours Chevron to Boost Spend on Quick-Return Projects
  • 3 hours *Happy Dance* ... U.S. Shale Oil Slowdown
  • 4 hours Germany: Russia Can Save INF If It Stops Violating The Treaty
  • 1 min Connection Between Climate Rules And German's No-Limit Autobahns? Strange, But It Exists
  • 13 hours UK, Stay in EU, Says Tusk
  • 20 hours What will Saudi Arabia say? Booming Qatar-Turkey Trade To Hit $2 bn For 2018
  • 18 hours Maritime Act of 2020 and pending carbon tax effects
  • 5 hours Conspiracy - Theory versus Reality
  • 1 day Venezuela continues to sink in misery
  • 13 hours Regular Gas dropped to $2.21 per gallon today
  • 20 hours German Carmakers Warning: Hard Brexit Would Be "Fatal"
Alt Text

Can Mozambique Avoid The ‘Resource Curse’?

Mozambique, like many other resource…

Alt Text

What’s Holding Back Argentina’s Shale Revolution?

The long-term prospects of Argentina’s…

Alt Text

The Oil Bull Market Is Back

Oil entered a bull market…

Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

More Info

Trending Discussions

Russian Economy In Dire Straits As Chinese Demand For Oil & Gas Slows


As opposed to the usual free-form structure, let’s do some painting by numbers to color in the backdrop for today’s market currents. Henceforth, five observations ahoy:

1) There is an interesting piece out this morning addressing the dichotomy seen within US shale producers, as some chose to hedge fairly aggressively in Q2, while some chose not to at all. While a similar volume of oil was hedged by the 30 largest publicly-listed producers at the end of Q2 as there was in Q1, 366 million barrels, some simply missed the opportunity to hedge at higher prices, and are less inclined to at these volumes. Related: “Supersize” Fracking Could Keep Natural Gas Prices Low For Years

The lack of hedging may also keep any rally along the futures curve reined in, as producers take the opportunity to hedge future production should prices rally at the longer end.

2) There has been a bunch of economic releases out overnight from Europe. Continued resilience in German data, in combo with Italy and Spain, has lifted both Eurozone PMI services data and the composite (services + manufacturing) above both its consensus and last month’s level.

The composite is now at a four-year high, despite continued weakness from France. The services print for France hit a five-month low, while unemployment remained at 10.3%. UK services also underperformed, showing its weakest print since May 2013.

3) While many countries are hurting due to the drop in the oil prices, Russia is being one of the worst hit. The IMF predicted in July that its economy would shrink by 3.4% this year, and these expectations have only been ratcheted lower given the recent return to lower oil prices.

As the below graphic succinctly highlights, a significant dependence on the oil and gas industry has meant that lower prices have hurt the ruble, and ultimately, its economy. It is seeing the worst economic performance of any emerging market.

Revenues from oil, gas, coal, minerals and forest products (minus their production costs) account for 18% of Russia’s economy: Related: Why Did Oil Prices Just Jump By 27 Percent In 3 Days?

(Click to enlarge)

4) Russia’s economic situation is also seeing a detrimental impact from the slowing economic environment in China. After all, Russia is one of China’s key suppliers across the energy spectrum. Even though Chinese natural gas demand grew at 5.6% last year, it still dropped below that of economic growth for the first time in a decade – despite a concerted effort by China to increasingly focus on natural gas as a substitution fuel for dirtier coal. This year, through July, natural gas demand growth is even slower, at 2.3%.

According to Chinese customs data, Russia sent 930,000 barrels per day of oil exports to China in the first seven months of the year, making it China’s second largest supplier, surpassing Angola. According to #ClipperData, a quarter of these flows – or 233,000 barrels per day – were waterborne deliveries, while the rest were by pipeline. Waterborne deliveries to China continue apace from Russia recently. #ClipperData show that just yesterday two cargoes totaling 1.5 million barrels arrived in the Chinese ports of Huizhou and Dalian. Related: Why Now Is The Time For Investors To Pick Up Positions In NatGas

(Click to enlarge)

5) Ahead of the big bad daddy of employment reports tomorrow, nonfarm payrolls, we have seen weekly jobless claims in the US climb to a two-month high at 282k. This was worse than both the consensus of 275k, and last week’s revised 270k. The euro is getting pummeled as the European Central Bank President Draghi discusses ongoing weakness in the Eurozone in his post-interest rate decision conference (Eurozone rates left at 0.05%). This currency move is providing headwinds for a crude move higher today, and amid listless market moves (and China closed for two days, phew), oil is looking subdued for now.

By Matt Smith

More Top Reads From Oilprice.com:




Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News