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Oil May Never Return To The Triple-Digits

Fewer and fewer energy professionals…

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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Supply, Demand Equilibrium Further Away Than Ever Before

Yesterday’s 2.6 million barrel build to crude stocks from the US weekly inventory report has has sucker-punched oil prices lower once more. A drop in refinery utilization – combined with imports popping above 8 million barrels per day for the first time since April – flip-flopped the expectation of a 2 million barrel draw into the reality of a solid build.

US crude inventories still kicking around 80-year highs (source: EIA)

As we charge towards refinery maintenance season, and a deeper one than seen in recent history, crude demand is set to wane into September. While refinery utilization on the four-week moving average remains a country mile above the range of recent years, the trend of deferring seasonal maintenance by some refiners is unlikely to carry through to this fall, especially given the costly reminder provided by the Whiting refinery outage last week. Related: Could This Innovation Pave The Way For An EV Revolution?

On the economic data front, German producer prices clawed their way out of deflationary conditions (MoM), while tales of retail sales in the UK came in shy of expectations, bucking the trend of recent positive data out of Blighty. Here in the US, weekly jobless claims came in a wee bit worse than expected at 277, 000, ticking higher for the fourth consecutive week. These collective overnight releases have Related: How Much Pressure Will Iran Put On Oil Prices?

done little to lift the mood in broader markets, as a blanket of bearishness has been laid across equity markets overnight, while government bonds across the board are being bought up like hot cakes.

While we’ve already discussed this week the detrimental impact that the current commodity rout is having on both OPEC and Latin America, today’s regional focus shifts to another key oil producer – that of Norway. Norway’s economy is closely tied to oil, given almost half of its exports relate to petroleum.

Hence, the latest statistics show that Norway’s economy is slowing to a standstill, with GDP at an anemic 0.2% last quarter (this is both seasonally adjusted, and excluding oil, gas and shipping).

In what is also rather fascinating news, Mexico’s finance ministry has announced it has bought options based on Maya and Brent crude oil prices to hedge 212 million barrels of its oil for next year at $49 a barrel. Mexico has historically made some astute decisions in the past. Last November it hedged its production for this year at $76.40, while in July 2008 it hedged its 2009 exposure at $70, essentially meaning its economy managed to dodge a financial crisis amid the great recession. Related: Is This The Best Play In U.S. Oil?

Finally, it isn’t only Saudi and Iraq within OPEC who continue to push oil onto the market undeterred; as I referenced this morning on CNBC, #ClipperData show Angola is exporting at its highest level since March, as is Nigeria:

 

By Matt Smith

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