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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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Wave Of Profit-Taking Keeps Oil From Breaking Out

Forty-one years to the day after the birth of chef Jamie Oliver, and the recent rally in oil is looking a wee bit overcooked, after having a nibble at the $50 mark. Dollar strength returns to pressure prices lower, while a bout of profit-taking after hitting the psychological level of $50 is spurring on selling into the holiday weekend. Hark, here are five things to consider in oil markets today.

1) According to Saudi Aramco’s annual review, the Kingdom produced 10.2 million barrels per day last year, up from 9.5 million bpd in 2014 – reaching an all-time high. Oil reserves were unchanged at a hefty 261.1 billion barrels.

Our ClipperData affirms Saudi Aramco’s numbers that exports rose above 7 million barrels per day last year. Meanwhile, for the Arab Gulf on the whole, increased loadings over the last year from Saudi, Iraq, and Iran mean that loadings have been higher on a year-over-year basis for every one of the last twelve months. The last six months have been particularly strong, averaging nearly 12 percent higher than year-ago levels:

2) On the economic data front, we have seen weak inflation numbers from Japan, in deflationary terrain for a second consecutive month at -0.3 percent for April. This has stoked ‘bad is good’ sentiment in Japan, as it appears to have prompted the delay of an increase in sales tax by Prime Minister Abe. Out of Europe we have had positive French consumer confidence data, strong Spanish retail sales, but weak confidence numbers out of Italy. Related: The Consequences Of $50 Oil

On to the U.S., and we have seen Q1 GDP refreshed; it is slightly below than the initial expectation, at +0.8 percent QoQ. Consumer spending was also mildly disappointing, coming in at +1.9 percent for Q1, compared to consensus of +2.1 percent.

3) In contrast to the growing drumbeat ahead of next month’s Federal Reserve’s FOMC meeting, there is more of a sense of apathy ahead of OPEC’s meeting next Thursday in Vienna. The meeting is summed up on the OPEC website, with the event titled the 169th (Ordinary) OPEC meeting. It should pass in an ordinary – and orderly – fashion, with the usual wee bit of excitement and anticipation as the gang gathers, but with a feeling of deflation when it ends. The biggest difference with this meeting is going to be the absence of the charismatic Ali al Naimi….he will be sorely missed (*looks misty-eyed*).

4) The graphic below is from this piece which suggests that oil may need to rise to the mid-$50s before producers really ramp up tapping their drilled but uncompleted wells (DUCs). Below $50/bbl, these wells are likely to be tapped at ‘a more measured pace’. EOG resources is leading the list of DUCs – but for those that are DUCs and deemed as abnormal inventory:

(Click to enlarge)

5) Following on from the above point, those DUCs that are included in normal working inventory are showing up in this data from Rystad Energy. They project there are still about 3,900 DUCs across U.S. shale plays. Permian has the highest DUC inventory with 1,200, followed by Eagle Ford with 1,000, then Bakken at 850. Related: 5 Crazy Energy Ideas

(Click to enlarge)

By Matt Smith

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  • Dan on May 27 2016 said:
    With this price of oil 49.2 CHK should cost $7 share, not $4!!!

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