It's a new quarter, a new dawn, a new day...and OPEC is feeling good. Brent crude prices have touched the $50 mark today before heading lower again, on signs that OPEC production continues to rise....ahead of their looming production cut. Hark, here are five things to consider in oil markets today.
1) Mexican crude export loadings have surprisingly increased in September, despite Pemex announcing that August production dropped to 2.14mn bpd - its lowest level in over thirty years.
In recent years, we have seen Mexico try to reduce its reliance on the U.S. by sending its crude further afield. As our ClipperData below illustrate, Japan and South Korea have emerged as two of the top five destinations for Mexican crude in recent years, while Spain and India remain consistent recipients. The U.S. accounted for over 70 percent of Mexico's oil exports in 2014. This share dropped to 60 percent last year, and is now down to 55 percent this year.
2) Part of the increase in Mexico oil exports can be explained away by falling refinery runs. As the chart below illustrates, crude inputs to refineries have fallen to the lowest level since December 1990, processing 848,000 bpd in August.
This is down 20 percent from year-ago levels, with Mexico's six refineries operating at 51 percent of capacity. With the Mexican fuel market in the process of liberalizing, and with Pemex's budget slashed by another 18 percent for next year, fuel production is likely to remain under pressure, while imports of U.S. gasoline continue to rise.
3) Juxtapositioned news flow continues apace, as immediate talk of rising production goes against the grain of an impending production cut by global producers.
Not only is OPEC production likely to have risen last month, with Libyan ports being reopened and increasing Iraqi exports out of the north of the country, but according to the Russian Energy Ministry, Russian production has increased to 11.11mn bpd, up 3.8 percent on the prior month (h/t @TREnergy) to a new multi-decade high.
4) Last year's impressive fundraising by U.S. E&Ps has been blown out of the water by this year's stock offerings. As energy companies have raised capital to bolster their cash flow situation amid lower prices this year, confident investors have been more than willing to foot the bill. Stock offerings so far this year are already ~$10 billion higher than last year's level...with still a quarter of the year to go:
5) While the latest CFTC data show bullish bets for WTI increased by over 8 percent ahead of the OPEC meeting, higher prices are continuing to encourage higher drilling activity. The oil rig count rose by 7 on Friday to 425 - to the highest level since February.
While it is still considerably below last year's level of 614, it is considerably higher the May's low point at 316 rigs. Platts projects that the rig count will grow by 29 percent next year; increased activity combined with increased efficiencies should mean U.S. production remains stubbornly high.