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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 Prices Cut Off At The Knees By Inventory Build

The crude complex is already in the mood for Halloween later this week, spooked once again on what would have been Jackie Coogan’s 101st birthday. A weaker dollar early on had been trying to lend some support, but as the market is starting to buy into a theory we have been highlighting for a while here at ClipperData – that inventories are reaching an alarmingly high level – prices are facing headwinds to a move higher.

Economic data flow has been a little lacking overnight, with Asian markets getting the opportunity to react to Friday’s Chinese interest rate cut. The main data release of note has come from Germany, with the release of business sentiment data (aka, the IFO). While the current assessment dropped for a third consecutive month, the business expectations index – which is forward looking for the next six-months – rose to a seven-month high:

IFOBusinessExpectations

IFO Business Expectations (source: investing.com) Related: Stop Blaming OPEC For Low Prices

This week sees a flood of Q3 earnings releases, with nearly a third of the S&P500 reporting (169 companies). About 15 percent of these reports will be energy related, including the ‘supermajor’ oil companies. In a similar vein to what we saw from oil services companies such as Halliburton and Schlumberger recently, their results should only underscore the current challenging oil price environment.

The chart below illustrates how the four key oil players, Shell, Exxon Mobil, Chevron, and BP, are seeing spending outpacing cash flow; this has amounted to more than $20 billion across all four in the first half of the year. Accordingly, they have slashed spending by $30 billion in recent months, with more cuts likely to come. Related: Is Russia The King Of Arctic Oil By Default?

DeficitSpending

(Click Image To Enlarge)

In other news, we learned over the weekend that the Chinese company, Yantai Xinchao Industry Co., is acquiring oil properties in West Texas to the tune of $1.3 billion. There is little known about the deal, except it is for land in the Texan counties of Howard and Borden, which are part of the Permian Basin. A purchase in this region makes the most sense, given that Permian wellhead economics are considered to be the best out of all the current U.S. shale plays. Related: Pain For Oilfield Services Will Continue Even If Oil Prices Rebound

The latest drilling productivity report from EIA highlights that the Permian is the only significant basin which is seeing production continue to rise – up to 2.03 million barrels per day, according to EIA’s estimate for November.

PermianRegion

By Matt Smith 

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