Crude has a shot at fifty dollardom

May 26, 2016 10:59:10 AM EST

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One-hundred and nine years after the birth of John Wayne, and oil is shootin' from the hip today, with both Brent and WTI taking a shot at fifty dollardom. As the dollar softens, and as another act of sabotage in Nigeria looks to further stymie production, crude is close to price territory not traversed since last year. Hark, here are five things to consider in oil markets today. 

1) Chevron's Escravos terminal in Nigeria has shut down due to a militant attack. The militant group, the Niger Delta Avengers, have blown up the facility's crude oil trunkline. We are finally starting to see in our ClipperData that crude loadings are dropping from Nigeria, as various crude grades such as Forcados reflect lesser crude production.

As our ClipperData illustrates, West African loadings are now considerably lower on a year-over-year basis, as Nigerian outages are stacking up, while Ghana has seen loadings halted from its Jubilee field since March:

ClipperData WAF loadings

2) On the economic data front we have seen a refresh of British Q1 GDP hold steady at +0.4% QoQ, while Spain has seen its own hold fast at +0.8% QoQ. In the U.S. we have seen notoriously volatile durable goods come in notoriously volatile once more, increasing +3.4%, versus consensus of just +0.5%. The devil is in the details, however, as a 65% rise in civilian aircraft orders have sponsored this strength. Weekly jobless claims were mucho better than expected, at 268k versus 275k - having held below 300k for 64 consecutive weeks.

3) U.S. regulators have a target for fuel economy standards of 54.5 miles per gallon (mpg) by 2025. Yet while the average fuel-economy of light vehicles sold in the U.S. has risen by 5 mpg in since 2007, we have seen recent low gasoline prices encouraging consumers to buy gas guzzlers instead. Pick-up trucks and sport-utility vehicles now account for 58% of U.S. vehicle sales, leading to stalling fuel efficiency from a peak in late 2014:

stalling fuel efficiency

4) While on the topic of gasoline, the chart below via @WMALHittle highlights how the share of premium gasoline has been increasing in recent years due to lower oil prices, more premium and turbo-charged vehicles:

gasoline sales

5) Finally, the chart below highlights how tanker rates have risen in contrast to the drop in oil prices, as the oil glut has driven down fuel costs and boosted demand for their services.

This is set to change, however, as an influx of new ships are set to hit the market - at about the same time that the oversupply of crude sloshing in the global market is being mopped up. The oil tanker fleet is projected to grow by 11% in the next two years; Hartland Shipping Services estimates that 64 VLCCs and 38 Suezmaxes will be delivered this year, with an additional 148 vessels next year, including 47 VLCCs and 63 Suezmaxes. The extra tankers will add around 370 million barrels of capacity to the market.
tanker rates

About the Author

Matt Smith

deciphers and distills what is most relevant across the energy complex into cohesive and pithy knowledge you can use. The belly laugh is a bonus.

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