Another week kicks off with oil under the influence of OPEC and producer rhetoric. As prices totter around psychological support at $50/bbl, hark, here are five things to consider in oil markets today:
As our ClipperData illustrate below, 60 percent of Venezuela’s oil exports go to three countries: the U.S., China and India. While flows to the U.S. make sense, not only given its proximity, but given how the sophisticated refineries on the U.S. Gulf coast are able to refine Venezuela’s heavy crude.
Citgo’s Corpus Christi and Lake Charles refineries on the U.S. Gulf further solidify crude flows betwixt the two nations. The U.S. has been the destination for just under a third of Venezuela’s crude exports this year, ticking slightly higher from last year.
India’s share of Venezuelan exports has also increased this year, at 19 percent through September, compared to 16 percent last year. As Russia’s ties with India grow ever closer amid acquisitions and joint ventures, Venezuela is likely to benefit as Russia pivots towards Latin America for supply, as opposed to its adversaries in the Middle East.
China’s share of Venezuelan crude has also ticked one percent higher in the last year, up to 9 percent. Venezuela’s relationship with China is one of necessity, however, than one of choice. For China has loaned Venezuela $45 billion over the last decade, with the debt to be repaid in oil.
If this isn’t bad enough, the drop in oil prices means that Venezuela has to send twice as much to service its debt, compared to when prices were twice as high at $100/bbl.
2) OPEC rumblings continue on, with Iraq again reaffirming its production is at 4.7mn bpd, despite secondary estimates pegging it materially lower. There are various technical OPEC meetings later this week, from which we may hear rumors and murmurs of country allocations in the context of a production cut. The fun never stops, does it?
Both speculative long and short positions shrank in the latest CFTC data, as conviction wanes from both bulls and bears about what happens next. (Sticking to $50 like glue?).
3) The below graphic lists ten of the largest oil and gas companies in the U.S. that have declared bankruptcy since the beginning of last year. Yet while vast sums of money have been put at risk, their production is projected to be around the same levels as prior to declaring bankruptcy.
Ultra Petroleum is a great example. While it is yet to emerge from bankruptcy (since declaring it in April), it has been renegotiating rig contracts, and is set to add another rig within months. Other companies, such as Halcon Resources and Sandridge Energy, have raised more cash by issuing more debt while still in the throes of bankruptcy. That’s investor confidence for you.
4) The chart below from EIA today shows how producer short positions are close to nine-year highs, as they rush to hedge their production amid higher oil prices.
Such voracity for price certainty highlights two things: they think current prices are good value, and secondly, that the price volatility of the last two years has encouraged a greater modicum of risk aversion.
5) Finally, it would appear that the recent oil rally has fully worked its way into retail gasoline prices, and now that oil has leveled off, we should see gasoline resuming its end-of-year price descent as refineries return from fall maintenance and demand ebbs.