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Oil swept up in risk-on euphoria

Jun 23, 2016 12:14:17 PM EST

As the pound pushes on, equities rally, and bonds sell off, oil is being propelled higher by an expectation for a 'remain' vote coming through in today's Brexit vote. With that out of the way, let's dig into five interesting oil and gas-specific trends today:

1) The chart below illustrates how U.S. oil stockpiles are following a very seasonal pattern, falling no faster than usual. After building by 60 million barrels through the first third of the year, inventories have now started their seasonal descent as refining ramps up. If this trend holds, US oil inventories may not drop below 500 mn bbls this year.

us invs

2) There's a nifty bit of gasoline consumption analysis from the Dept of Agricultural and Consumer Economics (h/t the mighty @DarinNewsom), which shows how vehicle miles traveled in the U.S. have been on a tear in the last year. After seemingly being in structural decline a few years ago, miles traveled have roared back (pedal to the metal) to achieve a new record high, growing strongly year-on-year throughout 2015 into 2016:

vmt yoy

3)  On the economic data front, we have had the latest dose of preliminary PMIs. Eurozone manufacturing was better than expected, led by a super-strong German number, while services were worse across the board - dragging down the composite index.

Across to the U.S., and weekly jobless claims came in mucho better than expected at 259k versus an expected 270k. The preliminary U.S. manufacturing PMI was better than expected, while home sales were down 6% on the prior month, but not as bad as feared.

4) OPEC has just released its Annual Statistical Bulletin, in which it shows how the cartel's current account has dropped to a deficit for the first time since 1998. While some countries have managed to maintain a surplus (think: Qatar, Kuwait, UAE), some countries have seen a large deficit in the last year (stand up Saudi, Algeria, Venezuela) - dragging the aggregate into negative territory:OPEC current account

5) Finally, we have already discussed this week how the global LNG market is oversupplied, and is likely to be so in the coming years. But as we move into the next decade, more than fifty countries may switch to consuming  LNG - as they shift away from naphtha, diesel and fuel oil. Five countries have already made the shift this year: Colombia, Jamaica, Malta, the Philippines and Abu Dhabi. Nonetheless, the market is unlikely to return to balance (from its oversupplied state) until next decade.

Our ClipperData in the chart below illustrates the oversupplied nature of the current global LNG market. While it was expected that exports from the U.S. LNG terminal at Sabine Pass would head to Asia (where ~75% of global demand is), we are instead seeing cargoes heading far and wide - to Europe, the Middle East, Latin America - wherever they can be offloaded.

ClipperData LNG exports LNG export loadings from Sabine Pass

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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