Oil is closing in on the highs for the year in response to a surprise draw to crude inventories (all paths lead back to energy, all inventory surprises lead back to imports), while OPEC rhetoric once again loiters in the background, acting as an omnipresent influence these days. Hark, here are five things to consider in oil markets today.
1) Each day feels like walking through molasses, as we fight through the daily barrage of OPEC rhetoric. Comments are juxtaposed with the actions of the cartel, and we can see this playing out every day in the global flows of our ClipperData.
Today's example comes via flows to the leading destinations of demand growth: China and India. All 14 OPEC members have sent crude to the two emerging markets (even Libya, with 975,000 bbls of light sweet Sarir discharged at Dalian last December), and imports to the two are reaching the highest on our records.
While India receives some 90 percent of its crude imports from OPEC members, China is still the larger recipient. But the gap is closing; Indian crude imports from OPEC are up 16 percent through September compared to year-ago levels, while Chinese imports are only up 4 percent. The two combined imported just shy of 8mn bpd last month from the cartel:
2) As Saudi Arabia prepares its first bond issuance to shore up its finances, the IMF projects that the kingdom's budget deficit should narrow to 9.5 percent in 2016, down from 13 percent this year, as spending cuts start to take hold. Ultimately, this is expected to lead to improving economic conditions in 2017.
That said, the Saudi government's efforts to cut costs appear to be having less of an impact than hoped, according to the IMF. In April the IMF projected that Saudi's break-even price would drop to $66.70/bbl, given cost-cutting measures by the government. It has just revised this number up, however, to $79.70, as Saudi struggles to diversify its economy away from oil (n.b., it is targeting $100 billion per annum in non-oil revenue by 2020).
As the chart below illustrates, based on fiscal responsibilities, only Kuwait has a breakeven below $50/bbl:
3) What stands out most from the above chart, however, is that Libya has a break-even of $216.50, given its depressed level of production. That said, as Libya reopens key ports and resumes oil production at key oil fields, we can see in our ClipperData that crude loadings are on the rise. In fact, the total volume of crude loaded is over 6.7 million barrels so far this month - already higher than any other month this year, barring July.
July's level is surely set to be passed, however, given there is more than a third of the month left, and given the Waha field has been restarted. The field is a key source of light sweet Es Sider, and production is estimated to be up to 50,000 bpd this week.
4) In one heck of a turnaround (no pun intended) a swift dive into refinery maintenance in the last three weeks has meant that crude inputs have dropped a whopping 964,000 bpd. After being considerably higher than year-ago levels (to the tune of 372,000 bpd) three weeks ago, runs are now just a mere 25,000 bpd higher at 15,370 bpd. It would appear that we are the peak of maintenance season:
Despite drop in refinery runs, we still saw a chunky draw of 5.2mn bbls to crude inventories, encouraged by lower imports; all coastal PADDs showed a drop versus last week.
Gasoline inventories still saw a really solid build despite lower refinery runs, as implied demand dropped considerably on the prior week. Distillates showed another seasonal draw - even though implied demand also dropped. A very mixed report on the whole.
5) Finally, we had a slew of Chinese economic data out overnight, which was broadly neutral. Q3 GDP came in line with both last quarter and expectations at +6.7 percent YoY, while retail sales were slightly better than expected (at 10.7 percent YoY) while industrial production missed (+6.1 percent vs. 6.4 expected).