With the U.S. dollar being dealt a most solid dose of the whoop-bang-wallops (WBWs), crude prices cannot help but be propelled higher today. The great British pound on track for its best day since 2008, as the promise of a parliamentary vote on Brexit has sent it on a madcap rally. A super-strong pound (ergo, a weaker dollar) is lifting crude - although the fun and games for crude kick off in the coming days, with monthly IEA and OPEC reports, and the weekly EIA report. Before that, hark, here are five things to consider in oil markets today.
1) The National Development and Reform Commission (NDRC) for China has published its latest five-year plan, in which it outlines its expectations for domestic oil production. It projects it at ~4 million barrels per day in 2020 - similar to where it is today, and down 7 percent from its previous estimate. Wood Mackenzie is even more pessimistic than this, projecting oil output will drop to 3.6mn bpd over the next four years.
Natural gas production, however, is expected to rise by almost two-thirds on its prior estimate - up to 220 Bcm by 2020 - as state-run oil and gas companies continue to stymie their investment into oil, and pivot their efforts towards natural gas. Shale gas output is projected at 30 bcm - some 14 percent of this total.
CNPC is expected to further cut spending on exploration and engineering this year by 20 percent. Break-evens for onshore oil fields are pegged at around $50/bbl.
2) We spoke recently about how China's National Energy Administration (NEA) has outlined a plan to invest $361 billion into renewables by 2020. Worldwide spending on clean energy last year was at $287.5 billion, down 18 percent on 2015's record high.
China's spending on renewables actually tumbled 26 percent, but still accounted for 31 percent of global investment last year as it came in at $87.8 billion. The U.S. accounted for $58.6 billion of the total. Worldwide spending dropped in part because technological advances and competition have dramatically reduced the cost of solar panels and wind turbines. This year is tentatively projected to be in line with last year's investment.
3) According to internal documents, PdVSA expects Venezuelan oil production to remain near 23-year lows this year, coming in close to last year's average production level of 2.5mn bpd. (To put this number in context, OPEC secondary sources peg November production at 2.1mn bpd, direct communications peg it at 2.3mn bpd).
PdVSA projects that Venezuelan crude exports to India are going to drop to 360,000 bpd this year, down 16 percent versus last year's levels (hark, in line with our ClipperData below). This highlights the potential for further financial stress from PdVSA, as not only is India a key destination for its crude, but India also pays in cash - something PdVSA desperately needs.
A projected increase in exports to China this year indicates PdVSA's need to meet its obligations to the oil-for-debt program, which has been in place with China for a decade, and amounts to more than $50 billion.
4) PdVSA imports light crude and naphtha to act as a diluent for its heavy Orinoco crude. It expects to face a shortage of 28,000 bpd of naphtha in the coming year, given spending constraints. In an effort to counter this, it has a longer-term plan to adjust its refineries to produce more naphtha. In the meantime, it will have to accept a depleted volume.
As our ClipperData illustrate below, the U.S. consistently exports naphtha to Venezuela and Curacao. Volumes have already dropped nearly 17 percent in 2016 to 50,000 bpd, as PdVSA struggles to raise enough cash to meet its obligations.
5) Finally, today's stat of the day comes from Saudi Aramco's CEO. Asim Nassir said on a panel at the World Economic Forum in Davos today that $25 trillion would need to be invested in new oil capacity over the next 25 years to keep up with rising oil demand. Despite a global push towards renewables (as we've spoken about already today), a material shift away from crude will take decades to come to fruition.