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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 Rises As Saudis Move To Implement Output Cuts

Oil prices remain bid up into the weekend, as the market adopts the first part of the motto 'buy the rumor, sell the fact' ahead of tomorrow's OPEC / NOPEC meeting. Ahead of the weekend's fun and games, hark, here are five things to consider in oil markets today:

1) The number of NOPEC producers attending this weekend's meeting continues to rise. We've already addressed Omani oil exports this week, while we looked at Mexico late last week. In terms of Azerbaijan, it produces about 850,000 bpd - the vast majority of which is exported. The BTC pipeline transports light sweet Azeri Light to the Turkish port of Ceyhan (the same port which Northern Iraq's Kirkuk crude is loaded), where it then leaves for all manner of destinations:

(Click to enlarge)

2) With non-OPEC members completing their RSVPs at the last minute, the chart below is a key reminder that virtually all of the potential attendees - barring Kazakhstan and Russia - are seeing production shrinking. The inclusion of natural declines to round out the 600,000 bpd of production cuts needed by non-OPEC seems the only way their goal will be achieved. (Is kinda like going on a diet...without actually having to diet).

(Click to enlarge)

3) One report has spurned two contrasting headlines today, as Wood MacKenzie's look at global oil and gas exploration for next year is viewed from both a glass half-full and half-empty perspective.

Wood MacKenzie sees exploration returning to stronger profitability next year, with double-digit gains after five years of single digit returns. Overall investment is projected to be around the same level as this year at $37 billion, but lower costs are to provide a boost to profits.

Bloomberg has taken a more glass half-empty approach instead, focusing on how the $37 billion allocated to exploration and appraisal next year is to drop to the lowest level in twelve years.

One positive to take from the Wood MacKenzie report is the focus on deep water exploration, which is expected to provide more than half the volume of oil and gas discovered next year. Related: Will We See $60 Oil By Christmas?

(Click to enlarge)

4) Saudi Arabia led the charge in terms of an OPEC deal coming to fruition, therefore it makes sense that it is leading the charge in terms of implementing these cuts. Various sources are reporting that Saudi Arabia has told its US and European customers it is reducing oil deliveries next month, while flows to Asia are said to remain untrimmed.

5) As we can see in our ClipperData, the volume of Saudi crude exports into Asia dwarfs those volumes into the U.S. and Europe. Not only may Saudi be looking to cut to the US because it has the highest inventories, but because it is still trying to battle for market share in the key area of global demand growth: Asia.

(Click to enlarge)

By Matt Smith

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