Crude prices have reversed losses post-inventory report, despite a bearish build to gasoline stocks. As crude tries to clamber away from key technical support, hark, here are five things to consider in markets today.
1) Halliburton CEO Dave Lesar is the voice of optimism despite the oil services company booking a quarterly loss amid hefty charges of $3.52 billion due to its failed merger with Baker Hughes. Mr. Lesar said 'we believe the North American market has turned' with the bottoming out of the rig count in the last quarter. He expects a modest uptick to the rig count through the second half of the year - a move which Halliburton is well-positioned to take advantage of.
2) The latest monthly OPEC oil market report has shown Saudi Arabian production is on its seasonal move higher, in an effort to meet summer power generation demand. Secondary sources reported it up to 10.3 million barrels per day, while primary sources pegged it at a higher 10.55mn bpd.
The image below shows how Saudi has been drawing down its stocks after they reached a record high last October; the Kingdom is trying to meet rising domestic demand, while trying to maintain its stance of targeting market share with its exports.
3) Saudi continues to export crude at a rapid clip, with our ClipperData showing loadings year-to-date currently 7.5 percent higher than year-ago levels. This goes some of the way to explaining the aforementioned draw in Saudi crude stocks: it has been maintaining production at ~10.2mn bpd so far this year, while domestic demand is on the rise. Inventories are plugging the supply gap.
Yesterday we illustrated how Iraqi crude exports into India have surpassed Saudi flows in Q2 - a sign that the battle for market share is alive and kicking. We can see from the chart below that supplies to Saudi's top five destinations have dropped below 60 percent of their total exports. It would appear, at least for now, they are getting squeezed out of their largest markets.
4) Today's weekly inventory report has encouraged a turnaround in crude prices, despite a crude draw relatively in line with consensus. While focus remains on bloated gasoline stocks, it is prudent to remember that crude inventories sit over 55 million barrels (or 12 percent) above year-ago levels.
We may have seen crude stocks draw for nine consecutive weeks, but as the chart below illustrates...that is a seasonal trend. It is also a seasonal trend for them to start rising again as we shuffle through September, as refinery runs drop off. Given current crack spreads, there is little incentive for refiners to keep refinery runs elevated going forward.
5) Finally, despite all the constant kerfuffle relating to supply and demand, we can always find solace in the inverse relationship betwixt crude and the U.S. dollar to help explain away recent price gyrations. Hence, as the dollar hits a four-month high, crude tests multi-month lows.