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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 Up In Spite Of Crude Inventory Build

On the 84th birthday of the most wonderful Keely Smith (no relation, by the way), the oil market is reversing yesterday’s losses and going ‘zooma zooma’ to the upside, despite an impending solid build to crude stocks from the weekly EIA inventory report. Here are six things to assess relating to the oil market today:

1) Contrasting stories relating to Iranian crude exports remain absolutely fascinating, especially given the added benefit of being able to see the underlying loadings in our ClipperData. (Exhibit #1:) Roknoddin Javadi from the National Iranian Oil Company is cited today as saying Iran has increased oil exports to 1.8 million barrels per day. Related: Oil Fundamentals Could Cause Oil Prices To Fall, Fast.

Meanwhile, other stories (Exhibit #2) discuss how Iran is reluctant to sweeten its terms to win back European customers. This, however, is countered by the view (Exhibit #3) that it is financial hurdles such as banking and shipping insurance that are keeping exports in check. Whatever the motives may be, a suggested increase of 500,000 bpd of exports this month is a world away right now from our viewpoint.

2) A quick tour of overnight economic data show UK industrial production coming in below consensus for January on the prior month, up a marginal 0.2 percent YoY. We saw a smidgen of good news from Brazil as inflation for February ticked lower, although it still remains close to 12-year highs at 10.36 percent. It’s another quiet day on the economic data front for the U.S.

3) We do get weekly inventories today, with a solid build expected for crude. This belief is endorsed by our strong import data into the U.S. Gulf Coast, the seasonal trend of refinery maintenance, and a hat-tip from the API report last night with a 4.4 million barrel build. That said, the draw to gasoline stocks in last night’s API report appears to have more than offset the bearish crude build, and gasoline is dragging the crude complex higher today. Related: Contraction In U.S. Shale Pushes Oil To $40

4) Yesterday’s monthly EIA short term energy outlook underscored the agency’s ongoing bearish posture, as it adjusted inventory builds higher into next year. It now projects that supply will continue to outpace demand by over 1 million barrels per day through the first half of next year, before moving close to being balanced in late 2017.

The EIA pegs U.S. production at 9.1 million bpd in February, ~80,000 bpd lower than January’s figure, and expects it to still average 8.7 million bpd this year, and 8.2 million bpd in 2017. It did, however, revise up non-OPEC production this year, now expecting it to increase by 0.2 million bpd, before finally dropping next year (by 0.3 million bpd).

(Click to enlarge)

5) The EIA report also highlighted 2.2 million bpd of unplanned supply disruptions to OPEC members in February, an increase from the prior month caused by sabotage to pipeline flows in Iraq and Nigeria. Nonetheless, it projects OPEC production to grow by 0.7 million bpd this year and 0.4mn bpd next, led by (….bah bah baaaaaahhhh!) Iran. Related: The U.K. Is About To Boost Oil Exploration With An Old Trick

(Click to enlarge)

6) Finally, Chevron gave its annual strategic update yesterday, announcing that it is slashing capital expenditure by a third for 2017 and 2018 in an effort to preserve its dividend – which has been in place since 1926. While this view falls in line with we are seeing across the entire oil and gas sector (drastic cuts), what was super-interesting was comments about the Permian basin. Chevron announced they have identified 1,300 wells in the Permian that would be profitable at $40 a barrel or below, while another potential 2,700 wells would be profitable at $50. Herein lies our lid on prices it would seem.

By Matt Smith

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