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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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Saudi Oil Inventories Reach Record High As Demand Wanes

Forty-eight years to the day after Smokey Robinson and the Miracles released ‘I Second that Emotion‘, and oil services company, Halliburton, is echoing this sentiment. Halliburton is the world’s second largest oil services company behind Schlumberger, and after Schlumberger released challenging results on Friday, Halliburton has seconded this emotion with a quarterly release showing similar challenges.

Halliburton saw revenues dropping 36 percent versus the prior quarter, a similar result to Schlumberger’s 33 percent fall. Weakness from the North American sector was also a recurring theme, with Halliburton’s revenue almost halving from the region in the third quarter to $2.49 billion (North America accounts for about half of the company’s total revenue). Ongoing belt-tightening appears to be a common theme – not just for oil services, but for the industry as a whole. Related: Oil Market Showdown: Can Russia Outlast The Saudis?

In terms of economic data flow, we have had three key economic data releases out of China overnight. Arguably most important was GDP data, which came in at +6.9 percent for last quarter (YoY). This is below Q2’s +7.0 percent, but above the consensus of +6.8 percent. Nonetheless, this is the slowest quarterly pace of growth seen in nearly seven years, with a slowing trend distinctly in place:

ChinaGDPYY

(Click Image To Enlarge)

Two other key releases have come in the form of retail sales and industrial production. Retail sales came in at +10.9 percent (YoY), above both last month and the consensus of 10.8 percent. Industrial production, however, was the biggest disappointment of the trio, coming in at 5.7 percent (YoY), well below last month’s 6.1 percent and the consensus of 6.0 percent. Related: Downturn Hits Bottom But High Oil Storage Could Delay Recovery

Weakness from the industrial sector was endorsed by September Chinese electricity data. Power generation demand dropped 0.2 percent in September versus the prior month, and was also down 3.1 percent year-on-year. Given a rather downbeat backdrop from various indicators, industrial activity looks likely to show further slowing in the coming months:

ChineseIndustrialProduction

Chinese Industrial Production, percent YoY (source: investing.com)

There is nothing of note in terms of economic releases from Europe or the U.S. today, leaving focus to lie on U.S. earnings season. A poor start to earnings season is weighing heavily on sentiment, and in combination with the softer Chinese data, the crude complex is charging lower to start the week. Related: Depressed Coal Markets Could Get Worse

Finally, a theme of high global inventories has once again thrust itself into the limelight, as JODI data over the weekend highlighted that Saudi Arabian crude stocks have reached a record high of 326.6 million barrels in August. As Saudi continues to keep production elevated, and as it struggles to find a home for all its exports amid a highly-competitive global market (awash with crude), this extra oil is finding its way into stockpiles as exports ease:

SaudiCrudeStockpiles

(Click Image To Enlarge)

By Matt Smith 

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