Market Currents – Extinguished Edition

Market Currents – Extinguished Edition image

Market Currents – Extinguished Edition

02/10/2016 | Author: Matt Smith

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One hundred and fifty-three years after the fire extinguisher was patented by Alanson Crane, and the overnight rally in the crude market has once again been snuffed out. After double bearish trouble yesterday came in the form of the IEA and EIA monthly reports, today’s OPEC report has again put a damper on things.

Although last night’s API report yielded a build to crude stocks of 2.4 million barrels, it was less than the consensus of 3.6 mn bbls. We here at the good ship ClipperData were expecting a much lesser build  – or even a surprise draw – as inclement weather in the Gulf of Mexico has delayed the discharging of cargoes in the last week.  We still see over 20 million barrels still waiting to discharge, over double the usual volume, as weather continues to cause delays. As for gasoline inventories, last night’s API report is stoking expectations of a larger build than the consensus of 0.4 mn barrels.

Ahead of today’s EIA inventory report, we have had little in the way of economic data, with the main bits being a spate of industrial production numbers out of Europe: Italy, France, and old Blighty all showed disappointing prints on this front. Federal Reserve Chair Janet Yellen is ruffling market feathers today as she delivers the first part of her Humphrey-Hawkins testimony.

After yesterday’s monthly report from the IEA and EIA, the circle is now unbroken with the arrival of OPEC’s monthly oil report today. It too has carried on the theme of an ongoing market imbalance; based on the cartel’s current output, the market is oversupplied by 1.84 million barrels per day this quarter.

In terms of non-OPEC oil supply, the cartel has made a downward revision of 40,000 bpd, seeing production decline by 700,000 bpd this year, driven by recently announced capex cuts by various international oil companies. It also marginally adjusted its oil demand growth expectations lower for this year, now at +1.25 mn bpd. Even though non-OPEC supply is set to be below last year’s levels, its is still expected to be higher than three of four quarters in 2014.

non-opec supply

 

While OPEC expects Canadian production to increase this year by 70,000 bpd to 4.46 mn bpd, led by oil sands development, it expects Mexican oil production to drop by 130,000 bpd to 2.47 mn bpd. This follows a  drop of 200,000 bpd in 2015.

Canada Mexico oil supply

 

All the while, OPEC’s output continues to rise. According to secondary sources, output increased 103,000 bpd last month. The biggest increases came from Nigeria (74,000 bpd), Iraq (60,000 bpd), Saudi Arabia (44,200 bpd) and Iran (38,100 bpd), while Angola and Venezuela saw the biggest drops at 39,200 bpd and 34,500 bpd, respectively.

While the latest OPEC report shows Kuwaiti crude production averaging very close to 2.75 mn bpd in the last two years, Kuwait Petroleum Corp has just announced that it plans to boost production by 150,000 bpd by Q3 of this year, and is planning to sign export deals with European companies. Kuwait holds the sixth largest oil reserves in the world, over 100 billion barrels. According to our ClipperData, less than 6% of Kuwait’s crude exports currently head to Europe. The usual suspects for OPEC barrels are the most common destination: South Korea, India, China and Japan.

Finally, the chart below illustrates that Chinese domestic crude production is likely to fall this year, amid a lack of investment. Sinopec (aka CNPC) said its production dropped 5% last year, while Petrochina said its production fell by 1.5% through the first three quarters of 2015. These two account for approximately 75% of Chinese oil production.

As Chinese oil demand is set to rise again this year – driven by domestic strength in gasoline demand or ongoing strategic stockpiling (hark, the National Bureau of Statistics point to 113 million barrels of storage under construction for this year), China looks set to import over 60% of its needs.

China oil slide

 


About The Author

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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.