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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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Looking At The Data Behind Low Oil Prices

Looking At The Data Behind Low Oil Prices

With so much talk swirling about the current oil price drop, I feel compelled to focus less on the rhetoric and more on the data. So the vibe of this post lands somewhere between Elvis Presley’s ‘action ‘and one of my boss’s favorite phrases: ‘In God we trust, all others must bring data‘.

First up, let us take a look at the apparent key culprit for the recent sell-off: US oil production. While conspiracy theories may persist about OPEC targeting the demise of the US shale oil revolution, it is impossible to deny how startling the ramp up in US oil production has been in relation to impacting global markets:

The New Oil Equation

Such a seismic change in domestic production has left the US needing to import much less oil. This has been no worse felt than by Nigeria and Algeria (hark, both in OPEC), whose oil exports to the US have fallen by 93% since 2010.

Related: Mexico Proceeds With Oil Auction Despite Low Oil Prices

That said, while Nigeria has seen its oil imports drop to virtually zero in recent years (brown line below), Saudi Arabia (blue line) has seen its own imports hold relatively more stable:

U.S. Imports By Country Of Origin

This is in part due to Saudi’s self interest in the Gulf Coast region. After all, the largest US refinery is at Port Arthur and is owned by Motiva Enterprises, a joint venture between Saudi Aramco and Shell. Motiva is also the third largest refiner on the Gulf Coast.

ClipperData, a New York firm that tracks global crude movements, provides projections for US oil imports. The chart below shows Arab Gulf imports, which are primarily made up of Saudi and Kuwaiti imports.

Related: Oil Price Winners And Losers In Latin America

According to ClipperData’s projections, Saudi imports should continue to hold up comparatively well. This is a theme which should be maintained into 2015 as both Saudi Arabia and Kuwait cut oil prices in January to the US for the fifth month in a row.

USGC All Regions, Arab Gulf

While tumbling prices are a nightmarish scenario for those countries who are highly reliant on oil exports to meet their budgets (think: Venezuela, Iran, Russia), countries who are large importers (like the US and its need for 7.5 million barrels a day) are set to reap the benefits. Below are some statistics to illustrate how the US economy is set to benefit from lower oil prices:

Pricing Power

While the EIA projects that the US will continue to see crude production rising next year to average 9.3 million barrels a day, there are already signs of fear and doubt creeping in, from a large pipeline project in the Bakken being shelved to fears of US stripper wells seeing widespread closures (which produced 700 kbpd according to the latest data). The most likely result from lower oil prices is the cancellation of longer-term and larger energy projects, a number of which are already being viewed as underwater:

Running In The Red?

I could continue my data diatribe, but you get the point. There are so many unknowns swirling around in the current oil market that we have to find solace in the numbers and move forward from there. I defer back to my boss and Elvis: a little less conversation, a little more data.

By Matt Smith

Source - http://www.energyburrito.com/ 

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  • Ron Wagner on December 15 2014 said:
    I see oil staying low for the forseeable future and natural gas continuing to erode the possibility of oil becoming expensive again. China is a big reason for my thought. China has a command economy, and is going to be the largest oil and gas market. It has the will and goal to switch to natgas, nuclear etc.

    What do you think?
  • Craig Taylor on December 16 2014 said:
    "The New Oil Equation" chart is historical. Keep a link to it that's easy to find.

    But the "Pricing Power" chart is a reminder of a lesson that somewhere in the last forty years got lost: cheap energy fuels economies. High prices erodes the middle class and the amount the middle class can spend. Of course, with all the imponderables, who knows how it will shake out. And the issue of uncertainty is "certain" to trim some of the numbers, but hopefully not too much. And then… And then….

    Well, we do know these five things: first, the future growth of oil from Fracking is rather limited (3 to 12 years). Relatively soon, the price of oil will start creeping back up. A growing percentage of power plants will be powered by alternative energy. Because of numerous technology breakthroughs and many cheaper but fully functional new materials and because people like cheap energy, there are only going to be so many survivors in oil in the next few decades and many of those survivors, like Saudi Arabia, are unlikely to need partners who own shares. And finally, the percentage of EVs will be rising very quickly when consumers prices are reached (and they will be fairly soon).

    But note this: the longterm uncertainty of oil is rising. But longterm the uncertainty of alternative energy is falling rapidly, along with falling costs.

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