Happy Cinco De Mayo! It is also national cartoonist day, and accordingly we are being left to draw our own conclusions from today’s variety of influences on the crude oil market. Here are five of them to consider:
1) Jumping into the overnight data, China’s Caixin services PMI fell in line with other Chinese releases of late by being disappointing. It came in at 51.8, versus the expectation of 52.6. Services PMI from the UK was equally as underwhelming. Onto the US, and the latest weekly jobless claims report has joined yesterday’s ADP report by putting the cat among the pigeons ahead of Nonfarm Friday (aka, official US monthly unemployment data).
The weak weekly jobless claims print of 274k was much higher than both last week’s 257k, and the consensus of 260k. This is scuppering expectations of 200,000 jobs being created last month.
2) The graphic below is from the WSJ, highlighting spending cuts across the energy sector due to lower prices. Since oil prices started their precipitous drop nearly two years ago, we have seen larger, more ambitious projects such as ultra-deep-water drilling projects getting cancelled or deferred into the future.
Cuts now total some $270 billion, with further losses to come. Shell’s 10% capex cut announced this week follows a 25% cut by ExxonMobil for this year, while ConocoPhilips said last week it is further reducing spending by $700 million this year. While the low for crude oil prices may be behind us, further capex cuts lay ahead.
3) A huge wildfire in Fort McMurray, a Canadian city in Alberta next to the Canadian oil sands, is raising concerns that oil production in the region is going to be impacted – amid the entire city’s evacuation. Pipelines in the region are being shut as a precaution, while output at facilities in the area are being disrupted. Numbers are being bantered around, with estimates as high as 800,000 bpd for how much Canadian production could be offline.
4) What started out as a crude oil glut has morphed into a distillate glut….and now a gasoline glut. And the beat goes on. Despite yesterday’s inventory report showing US gasoline demand is up to 9.5 million barrels per day, some 500,000 bpd, or 5.8%, higher than last year, we still see gasoline inventories some 14 million barrels (or 6%) higher for same time-frame.
While refiners over the last few years have been incentivized to keep churning out gasoline due to strong refining margins, a build up of excess gasoline on a global basis for the same reason means that imports into the US – and specifically the East Coast – have been solid.
We see in our ClipperData that gasoline imports to the East Coast have been over 800,000 bpd for two of the last three weeks, currently 14% higher than the five-year average. So despite US gasoline demand looking super-duper strong…super-duper supply is able to match it.
5) Finally, the chart below is from the EIA today, highlighting that some two-thirds of US natural gas production is from hydraulically fractured wells. Last year, approximately 300,000 wells were ‘fracked’, producing more than 53 Bcf/d.