Strong jobs, weak oil

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Welcome to another Nonfarm Friday! As job creation last month was mucho better than consensus (255,000 jobs created versus 180,000 expected, with an upward revision to prior data to boot), broader markets have a skip in their step, and are heading higher. Rising expectations of an interest rate hike return once more, hence a strengthening dollar is putting concrete boots on a third consecutive day of rallying for crude. Hark, here are five things to consider in oil markets today.

1) Ah, sheesh. Production freeze rumors again…really?! It is being reported that several OPEC members are reviving the idea of a production freeze (in their defense, why wouldn’t they? It rallied prices rather nicely last time round).

OPEC members including Venezuela, Ecuador and Kuwait are said to be behind this latest reincarnation. But just like previous endeavors, it seems doomed to fail, given key OPEC members (think: Saudi Arabia, Iraq, and Iran) persist in their battle for market share, ramping up exports apace.

As our ClipperData show below, exports from the three have been increasing on a year-over-year basis at a frenetic pace. Year-to-date through July, the three nations have increased exports by an average of 1.8 million barrels per day. Iran has seen the biggest increase, up  770,000 bpd YoY, while both Iran and Iraq are up over 500,000 bpd.

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2) In the face of slumping oil prices and hence lower revenues, the world’s biggest oil companies have made a decision to defend their dividends to the hilt, choosing to service them by raising increasingly higher levels of debt.

Back in 2008 when oil prices were riding high in triple dollardom, net debt for Big Oil was $13 billion. Since then, it has risen tenfold to $138 billion, and is expected to continue rising further in the coming quarters. Even though companies are slashing capital expenditures…falling revenues are still outpacing them. The price drop since mid-2014 cannot be held solely accountable for the rise in debt, however. Even in mid-2014 net debt had risen to $71 billion.

rising oil company debt

3) Floating storage economics are creeping towards becoming more viable. Even though the contango in the Brent forward curve is still not particularly conducive, with prices six months out not much more than $2/bbl higher, shipping costs are continuing to drop. A six-month charter on a VLCC has now dropped to