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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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Oil Falls As OPEC Euphoria Abates

OPEC

As the meeting of NOPEC fast approaches this weekend, the mood in the oil market has shifted from euphoria to skepticism, as questions remain around the intent of key producers. With that in mind, hark, here are five things to consider in oil markets today:

1) Oman is a key producer in the NOPEC clan, and is expected to cut production by ~46,000 bpd to help the cause. At this juncture, it seems that Russia is the only other NOPEC member that is willing to cut (no Brazil, Azerbaijan attending the NOPEC meeting).

Oman is the largest producer in the Middle East who is not a member of OPEC, and plans to raise $1.5 - $2 billion next year via a bond issuance in an effort to plug its deficit. This is hot on the heels of Saudi Arabia, who sold $17.5 billion of debt in October. Oman's budget deficit widened 55 percent year-on-year in September to 180.5 million rials. Its budget deficit was 17 percent of its GDP in 2015; quite the ski slope:

(Click to enlarge)

2) Omani crude exports have been on a similar trajectory to those of its Middle Eastern neighbors in recent times; exports have averaged over 900,000 bpd this year, up 10 percent on the prior year. The destination of Omani crude is very much polarized on East Asia.

China accounts for some 70 percent of Omani exports, while Japan, South Korea and Taiwan account for nearly 20 percent. This leaves 10 percent to go to a plethora of other destinations, including the U.S., Pakistan and Mozambique. Related: Oil & Gas Stocks Soar On OPEC Deal – Can The Rally Continue?

 

(Click to enlarge)

3) The chart below is from the EIA's last Short term Energy Outlook of the year, released yesterday. It shows how in Q3 of this year, a group of 91 publicly traded global oil companies reported their first quarterly profit from its upstream businesses since Q4 2014.

According to earnings statements, the group of companies earned $2.3 billion in Q3, after a loss of $54.1 billion in Q3 of the prior year, driven in part by asset write-downs. The increase this year is in part due to a reduction in write-downs, which dropped 80 percent year-over-year, as well as higher profitability due to reductions in operating expenses (outpacing declining revenue).

(Click to enlarge)

4) The graphic below is from this piece on how CME and ICE are planning to launch derivatives which make it easier to trade LNG. Both are working on an LNG futures contract which is based on prices in the U.S. Gulf, to create a liquid transparent market.

As LNG capacity is expanded on the U.S. Gulf Coast in the coming years, U.S capacity could increase to over 60 million metric tons annually, which compares to Qatar - the world's leading exporter - at 77 million.

(Click to enlarge)

5) Finally, we said on CNBC back on November 2 that we expected Saudi to 'bamboozle' the market at the OPEC meeting by pushing through some type of production cut.

The bamboozling to the oil market is nothing compared to their equity market, however, which is up 30 percent since the Algiers meeting at the end of September (h/t @a_coops1). Nonetheless, the equity index is still down by over a third since the peak in mid-2014...when oil prices were last up over $100/bbl.

(Click to enlarge)

By Matt Smith

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