Oil Capex Cuts Under The Spotlight
Forty-seven years (!) after Simon and Garfunkel released ‘The Boxer’, and the bulls and the bears are slogging it out again. After trading blows in recent days, the bulls appear to have the upper hand, as technicals trump immediately weak fundamentals. Nonetheless, we are seeing a pullback today. Hark, here are six things to consider in oil markets today:
1) Jumping straight into economic data, we’ve had disappointing retail sales out of the UK before the Eurozone interest rate decision (still stuck at 0.0%, deposit rate still negative at -0.4%). We’ve subsequently had comments from ECB President Draghi that stimulus is working – and that loose monetary policy will persist for as long as it takes. The euro initially rallied, before unwinding again.
2) On to the US, and weekly jobless claims came in at 247k, astoundingly a 42-year low. The Philly Fed was a party pooper, however, with the regional manufacturing index coming in below consensus, showing deteriorating conditions.
3) There is a fair bit of focus on oil and gas investment levels at the moment, given we are in the redetermination period (aka credit-line reassessments). The IEA’s chief Fatih Birol has chimed in on the topic today, highlighting low oil prices have cut investment by about 40% over the past two years, and how the sharpest falls have been in the US, Canada, Latin America and Russia.
4) A study by Wood Mackenzie (chart = h/t @WoodMacKenzie) highlights that the trend of lower investment is set to persist. Their study projects $91 billion in capex cuts across 121 upstream companies this year:
5) A key takeaway from the above is that Rosneft is just one of two companies boosting their spending compared to last year. Rosneft, who accounts for about a tenth of Russian output, doubled its drilling rate last year. This piece (h/t @jfarchy) highlights how the Russian tax system and the weakness in the Ruble has helped to offset the pain of lower prices – at least compared to its global peers.
Hence, after a 12% increase last year in drilling activity, Russian production finds itself kicking around a post-Soviet record at
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.