IEA kick-starts crude oil rally to start the week

Share on twitter
Share on linkedin

pcThree hundred and eighty-six years after popcorn was first introduced at Thanksgiving dinner, and the crude complex is popping higher to start the week. Here are seven things to consider as this week kicks off:

iea under and oversupply1) The IEA is kick-starting this morning’s rally, saying the market ‘will gradually rebalance by 2017‘ in its medium-term oil outlook. This view is predicated on the expectation that US shale oil production drops 600,000 bpd this year, and by 200,000 bpd in 2017. The IEA projects that global oversupply will be wiped out by 2018, with global inventories starting to be drawn down in 2018 after a minor build next year.

2) The IEA does, however, project that US production will charge higher over the next half a decade or so, increasing by 1.2 mn bpd from 2015 to 2021, driven by efficiency gains. Global oil supply is expected to rise by 4.1 mn bpd over the same period.

3) We have had the latest bout of preliminary PMI numbers out of Europe, which on the whole were considerably mixed. In an odd twist, French manufacturing came in mucho better than expected, while Germany’s was well below expectations. The reverse was the case for services data, however, with German services outperforming, French services showing weakness. On the aggregate, Eurozone PMIs were below consensus.

4) According to the latest CFTC data, speculative long positions in WTI dropped by 5.3%, the biggest drop in seven months; this bearish sentiment was endorsed by a rise in speculative short positions. The latest ICE data, however, showed bullish bets increasing for Brent.

oil bullish bets

5) Exxon Mobil has announced that it has failed to replace production for the first time in 22 years. On Friday it confirmed its reserve-replacement ratio fell to 67% in 2015, under 100% for the first time since 1993. It announced it holds reserves equivalent to 24.8 billion barrels, enough to continue production at current rates for 16 years. This is down from 17.4 years of reserves at the end of 2014, but still better than that of its peers.

6) Whiting Petroleum Corp has announced it is canceling plans to drill 20 wells at Bakken and Three Forks as low oil prices kill profitability in the region. Whiting owns 667,000 acres in the Williston Basin, but is in cost-cutting mode after already slashing capex by 46% in Q3 of last year. It has also shelved plans for a pipeline in the region.

Bakken ouput versus price

7) An LNG tanker has docked at the Sabine Pass terminal in Louisiana, meaning the first cargo of LNG exports is set to leave the US any day now.