Crude oil heads for a third consecutive weekly riseTags: ClipperBlog
Fifty years to the day after ‘Wild Thing’ was released in the US by The Troggs, and oil markets are having an excitable end to a crazy week. Prices are aiming to finish higher for a third consecutive week, and at the highest level for the year. Hark, here are six things to consider in the oil markets today:
1) Checking the temperature of the global economy, we’ve had a few bits and bobs of economic data out overnight. Once again we find ourselves charging towards the end of another month (time flies when you’re having fun…), hence we’re set for a new batch of preliminary manufacturing releases.
Preliminary Eurozone manufacturing has come in below consensus, with a weak number from France usurping strength from Germany. Eurozone services data was also below par, as German weakness usurped a stronger showing from France. The preliminary US manufacturing print was as equally disappointing as that from the Eurozone – although both indexes still showed expansion.
2) Earnings season is upon us once more, with further tales of woe coming from oil and gas companies. Schlumberger, the world’s largest oil services company announced it had laid off another 2,000 employees in Q1, while earnings in Q1 dropped by 49% YoY. Job losses now total 36,000 since November 2014 – some 28% of its workforce.
3) As we prepare (well, brace ourselves) for the latest quarterly earnings from the oil majors, the chart below highlights the struggles they are facing relating to cost-cutting.
Even though Shell cut costs by 15% last year, while BP cut by 19%, costs have still doubled in the last decade. Shell had operating costs of $14.70/bbl last year, compared to $6/bbl in 2005 – when oil last averaged in the $50s for the year. BP’s costs were at $10.40/bbl last year, compared to $3.60/bbl in 2005.
4) BP releases its quarterly results next Tuesday, then Total follows the next day, while Exxon and Chevron are next up on Friday. Shell is the caboose, with results out on May 4th (hark, Star Wars day).
5) As more Iranian barrels make their way into the global market, and as Saudi Arabia continues to keep exports strong, our ClipperData show total Arab Gulf loadings (Iran, Iraq, Kuwait, Oman, Qatar, Saudi and UAE) continue to rise on a year-over-year basis.
We have seen loadings rise in ten of the last twelve months – although last May we saw the most marginal of a drop (15 kbd) it hardly seems fair to count it. We did, however, see a dip last month, although this is in large part due a strong showing last March, when we saw Arab Gulf loadings peak for the year. Lower production last month from the UAE manifested itself in lower loadings, while to counter this, Iranian loadings were building up a head of steam.
6) Finally, the chart below (via @ericbeebo) shows the massive reversal seen in the Barclays High Yield Energy Index, as fears of widespread bankruptcies in the oil patch recede. Yields have reversed most of the recent spike, as the ability of oil and gas companies to raise cash and cut costs – now joined by the positive influence of a rising oil price – is easing concerns of capitulation in the beaten-down sector.
About The Author
Matt is a Director of Commodity Research at ClipperData. Matt specializes in extracting key themes from technical and fundamental analysis of the global energy market, and communicating these through daily and weekly deliverables. He also provides oil and natural gas analysis and commentary to national and international media outlets that include CNBC, Fox Business, Russia 24, the Wall Street Journal, MarketWatch, AFP, Bloomberg, Reuters, and the Oil Daily. Prior to joining ClipperData, he worked for eight years at Schneider Electric / Summit Energy as a Global Commodity Analyst, where he also founded and authored the blog, Energy Burrito. He started his career at the Royal Bank of Canada in the UK, spending eight years with the bank. During that time, he managed $55 million in assets as a portfolio manager and financial analyst.