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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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Will We See OPEC’s Strategy Succeed Before Christmas?

The crude complex is charging lower into the weekend despite some bullish signals from the monthly IEA Oil Market Report (some might say today’s drop is in relation to a certain research piece, but we’ll side-step that).

Yesterday we took a look at some of the key themes in the latest EIA Short Term Energy Outlook, one of which was its expectation that non-OPEC production would be flat next year, as falling US production offset growth from elsewhere (EIA projects that production will drop from averaging 9.2 million barrels per day this year to 8.8 mn bpd in 2016). Related: With China Slowdown, Russia Looks To India

Today’s IEA report was more downbeat on the prospect for non-OPEC supply, looking at a potential loss of 0.5 mn bpd next year due to a loss of ‘high-cost production from Eagle Ford in Texas to Russia and the North Sea – the biggest decline in 24 years.’

The IEA projects that US shale will drop by 400,000 bpd next year, offset by rising production from the Gulf of Mexico to lead to an absolute drop of 180,000 bpd:

(Click to enlarge)

In terms of OPEC supply, the agency said production dropped by 200,000 bpd in August – led by declines from Saudi Arabia, Iraq, and Angola. This was somewhat expected, given pipeline issues in Iraq and seasonal demand waning in Saudi. It did, however, expect OPEC to pump 31.3 mn bpd next year. Related: California Oil Bill Defeated

So while it sees the supply side tightening, it also boosted its projection for global oil demand growth. It now sees demand in 2015 rising to a 5-year high of 1.7 mb/d, while maintaining its view for next year of +1.4 mn bpd. Robust.

The release of total light vehicle sales from the China Association of Automobile Manufacturers has highlighted ongoing weakness in its August data. Although China is still on track to outpace the US again this year as the largest global vehicle market, vehicle sales came in at 1.42 million units for China, while the US notched up 1.58 million sales, outpacing the leading emerging market for a second consecutive month.

On the economic data front, we have had German inflation data which was both in line and tame (h/t lower energy costs…lest we forget, all paths lead back to energy), while Spanish inflation is back in deflationary terrain. We’ve noted recently how both Italy and Spain have shown strength in their economic data, and Italian industrial production has affirmed this notion by blowing the doors off in the last month, rising the most in a year by 1.1% (vs. 0.5% expected), and up 2.7% YoY.

US producer prices were out this morning, and were flat on a month-over-month basis, as a stronger dollar and lower oil prices offset strength elsewhere – keeping inflation fears benign.

Finally, the Indian economy continues to tick along quite nicely; industrial production rose 4.2% YoY in July, beating expectations of 3.5%: Related: Is OPEC Too Big To Fail? Not Anymore

(Click to enlarge)

India industrial production, YoY (source: investing.com)

By Matt Smith

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