IEA, dollar tag-team to crush crude

Sep 13, 2016 11:35:05 AM EST

The combination of a strong US dollar and a weak IEA report is clobbering crude today. As the market limbers up for tomorrow's EIA report, hark, here are five things to consider in oil markets today.  

1) The release of the monthly IEA report has served to wop-bom-a-loo-mop-a-lomp-bam-wallop crude prices today, as it delivered a plethora of bearish prognostications. The agency revised demand growth lower for this year by 100,000 barrels per day to +1.3mn bpd, driven by 'wobbling' Asian demand, and falling consumption in Europe. (nice execution of the word 'wobbling').

Next year's oil demand growth was also revised lower, by 200,000 bpd to +1.2mn bpd. Given this expectation for easing growth, in combination with a rebound in non-OPEC supply next year, IEA sees a situation of oversupply persisting into 2017.

Oh, and OECD total inventories reached a new record of 3,111 million barrels in August. 

IEA_report_sept_2016.jpg2) While much focus remains on Saudi, Iraq and Iran, UAE has seen production reach a new record high last month at 3.09mn bpd, according to IEA (OPEC direct communications have it pegged at 3.15mn bpd).

As our ClipperData illustrate below, UAE consistently exports ~2.6mn bpd, with three key grades - Murban, Upper Zakum and Das - all light sour crude. The vastedly vast majority of these crude exports head to Asia, with Japan the leading destination by a country mile. 

UAE_exports_by_grade_ClipperData.jpg

3) Just when things were looking glum for the Chinese economy, we get a solid bout of better-than-expected economic data overnight from the Asian powerhouse. Not only did industrial production rebound to a 5-month high at +6.3 percent YoY, but retail sales rose +10.3 percent YoY, and fixed asset investment ticked held at +8.1 percent YoY for August.    

4) The chart below is from EIA, showing drilled but uncompleted wells (DUCs) at the end of August totaled 4,117 for the four key U.S. shale plays. While DUCs rose through 2014 and 2015, we have seen them decline since last December, declining by about 400 over the last 5 months. 

EIA_DUC.jpg

5) Finally, UK day-ahead power prices have seen the most epic of price swings in recent days, turning negative on Sunday amid strong wind power and low weekend demand.

The next day, however, the combination of the lowest wind generation in over two weeks and warmer weather spiked prices to their highest level in nearly three-and-a-half years. Makes volatility in the crude complex look rather tame, doesn't it?

UK_power.jpg

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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