And it's an exciting end to an eventful week in the oil market on this Friday the 13th. In fitting fashion, crude was screaming lower earlier, chased off by a stronger dollar (apparently in a hockey mask), before positive economic data has helped improve the mood a bit in the US. OPEC's monthly report has had something for both the bulls and the bears; hark, here are six things to consider in oil markets today:
1) On the economic data front, we have had a few bits and bobs from Europe; Eurozone economic growth in Q1 was revised slightly lower to +0.5% QoQ, up 1.5% YoY, while year-on-year inflation continues to be conspicuous by its absence across Germany, Italy and Spain.
On to the US, and a lack of inflationary pressures are apparent too, as producer prices are flat year-on-year (below consensus, but +0.2% for April). Retail sales, however, blew the doors off expectations with the best monthly rise since March of last year; the rise was led by autos, gas stations (all paths lead back to energy) and online retailers.
2) There is an interesting piece in the Wall Street Journal today which suggests that the stock out-performance of natural gas producers indicates that the darkest days for natural gas may well be behind us.
Even though oversupply in the US natural gas market is exemplified by storage at a 44% surplus to both last year's level and the five-year average, tightening fundamentals going forward are expected to bring the market closer to balance. Expectations are for US production to finally start falling, in no small part due to lower US oil production and the associated gas that comes from shale plays, while a La Nina weather formation later in the year is set to boost natural gas demand.
However, one man's meat is another man's poison. While the Canadian wildfires may have been bullish for oil prices due to significant production losses, but they have been meaningfully bearish for natural gas. Natural gas is a key input to Canadian oil sands production, hence a drop in oil output is leading to natural gas demand losses ~of 0.5 Bcf/d.
Nonetheless, prices, rigs and share prices appear to have bottomed out for natty:
3) OPEC has completed our trio of key monthly reports today, and similar to the IEA, has kept its demand growth expectations steady for 2016 at +1.2 million barrels per day (while the EIA ratcheted up theirs to +1.4mn bpd).
The cartel has adjusted non-OPEC supply lower again for this year, expecting it to fall 740,000 bpd, as $290 billion of capex cuts are made. As the chart below illustrates, the largest drop in supply is expected to come from the US, while declines are also expected from China, Mexico, UK, Kazakhstan and Colombia.
4) The OPEC report also highlights how Canadian demand for West African crude has been on the increase (page 9), as imports continue to be competitive with domestic grades. We see from our ClipperData that imports in March reached the highest level since our records began, over double the average volume seen arriving in 2015:
5) Not wanting to keep harping on about India, but OPEC's report once again highlights the broad-based demand strength we're seeing coming through from the Asian nation. Demand growth was up 600,000 bpd YoY for March, some 15% higher.
This meant consumption increased to 4.56mn bpd, the second highest level ever recorded. Gasoline, which accounts for 13% of consumption, was up 21% YoY, while diesel, which accounts for 36% of oil consumption, was up 15% YoY. LPG demand, which is 16% of consumption, rose 14% YoY. Solid.
6) Finally, in terms of OPEC production for April, it was up 188,000 bpd. Iran led the increases, with production rising 198,200 bpd to 3.45mn bpd. Iraq saw production increase by 154,000 bpd, while Kuwait and Nigeria saw the biggest losses, with drops of 132,000 bpd and 56,800 bpd, respectively.