After breaking technical support at $44, crude is charging lower to start a new week, once again weighed down by oversupply fears. As short positions build in the latest CFTC data, crude heads lower. Hark, here are six things to consider in crude markets today:
1) Nigeria is facing supply constraints again as a new bout of attacks on infrastructure has caused force majeure to be declared on the Qua Iboe crude stream once more. Despite streams such as Bonny Light having force majeure lifted on them earlier in the month, renewed attacks are again stoking supply fears.
As our ClipperData illustrates, Nigerian crude oil loadings are rising again this month after reaching a low for 2016 in June. Nonetheless, the grades that we have seen facing challenges this year - Bonny Light, Brass River, Escravos, Forcados and Qua Iboe - account for over 45 percent of crude loadings. Hence further complications for these crude streams are likely to put exports under pressure going forward.
As JODI data illustrate below, crude inventories for Nigeria are already depleted. Hence, while storage has been drawn down in recent months to offset supply losses, this cannot continue as stocks are drained.
2) Another week, another rig rise. The chart below illustrates rather nicely the price sensitivity of U.S. shale; as prices have risen above $45 a barrel in recent months, the rig count appears to have bottomed out.
The latest rig count from Baker Hughes shows the most rigs have been added since December, and have now risen for seven of the last eight weeks. As prices reverse lower once more, drilling activity is likely to face headwinds once more.
3) Ongoing fears of oversupply are encouraging hedge funds to liquidate their recent record bullish position; at the same time, we are also seeing a corresponding increase in speculative short positions. After prices reached fifty dollardom last month amid supply outages, the return of flows have encouraged fund managers to turn increasingly bearish once more.
4) The graphic below highlights how both OECD and non-OECD oil inventories have been rising over the last year-and-a-half amid a global supply glut, but also how Chinese crude inventories appear to have risen close to 160 million barrels in the last five months, something we at ClipperData have been banging the drum about for a while.
This estimate is based on the total of crude imports plus domestic production minus exports and refinery throughput; this pace of stockbuilding continues to appear unsustainable.
5) While on the topic of China, there have been a couple of interesting pieces in recent days about the latest ruling relating to the South China Sea. An international arbitration court ruled that China had been interfering with the oil and gas exploration activities of The Philippines, despite them trying to operate in their own exclusive economic zone. China, however, refuses to recognize the ruling, leaving The Philippines stuck in a stalemate; they need Chinese expertise to ramp up their activities.
This issue is such a hot potato because a third of global crude and a half of global LNG flows pass through the South China Sea, while the EIA estimates there could be 11 billion barrels of oil beneath the South China Sea, and 190 Tcf of natural gas. The below image is pilfered from Platts.
6) Finally, the EIA tweeted this yesterday (h/t @EIA), and it seemed a prudent thing to remind ourselves of the current breakdown of US energy consumption by source. In such a complicated world, we can sometimes miss the forest for the trees. Hence, even though renewables are ramping up strongly, petroleum products are still leading the charge in terms of market share by energy source: