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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 Rally To 2016 Highs On Weaker Dollar

Two hundred and three years after David Melville patented the gas streetlight, and oil prices are lit up once again today. Prices are rallying for a third consecutive day, and for a fifth consecutive week – the longest streak since last May. WTI has now leapt into forty-dollardom to boot, with an impending prompt month rollover to a higher level on Tuesday (contract expiry on Monday). Henceforth, here are six things to consider today:

1) There has been little in the way of economic data overnight to influence markets, with the Uni of Michigan sentiment data the main release of note in the U.S. today – all measures came in below expectations. We have several Federal Reserve FOMC speakers on deck – Dudley, Rosengren and Bullard – who all could all provide further insights into Fed policy going forward. This could filter through to our dearly beloved commodities via U.S. dollar oscillations.

2) The inverse relationship betwixt the U.S. dollar and crude cannot be understated. As we discussed yesterday, the rebound in risk appetite means crude is charging to multi-month highs as the U.S. dollar charges to multi-month lows. As ongoing loose monetary policy and stimulus measures are undertaken around the world, deterioration in the financial state of the U.S. shale industry is likely being postponed by the respite of an oil price rally:

(Click to enlarge)

3) In the broader scheme of things, the chart below is rather fascinating, for global carbon emissions have remained flat for the last two years. This move has been in large part due to the rise of renewables in the global generation mix: they accounted for 90 percent of new electricity generation last year. Hence, despite a global economy growing at ~3 percent last year, CO2 emissions have essentially been flat since 2013 at 32.1 billion tonnes: Related: Largest U.S. Refinery Now Belongs To Saudi Arabia

(Click to enlarge)

4) Statoil has confirmed that a gas facility at Algeria’s third largest gas field, In Salah, was hit by rocket-propelled grenades early this morning. This is stoking geopolitical concerns, given Algeria’s proximity to Libya (neighbors), where there has been such as surge in violence from the Islamic State. Algeria is the largest natural gas producer in Africa, and the second largest supplier to Europe (after Russia).

It is also one of the top three largest oil producers in Africa. Similarly to natural gas, the vast majority of oil exports head into Europe. According to our ClipperData, ~85 percent of Algeria’s ~450.000 per day of oil exports went into Europe last year, with the rest heading to North America (mostly Canada) and Asia (mostly India and Indonesia). Related: Dear President Trump or President Clinton, Here is Your Energy Agenda

(Click to enlarge)

Algerian oil exports by region (source: ClipperData)

5) @CapEconComms stands up for Brent today on Twitter, highlighting that while headlines may be focusing on WTI clambering into forty-dollardom, ‘plucky’ Brent got there first. Stiff upper lip, old chap!

 

(Click to enlarge) Related: The Rationale Behind Russia’s Withdrawal From Syria

6) Finally, the chart below is from Wood MacKenzie, highlighting average production of wells in the lower 48 states in the U.S. They estimate that stripper wells – marginal wells nearing the end of their economically useful life – account for some ~17 percent of onshore U.S. oil production.

By Matt Smith

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