Market Currents: Kung Fu crude remains choppy

After rallying like a mad thing to start the day (month, and year…), crude prices have reversed course, weighed down by a stronger dollar. Volatility looks set to be the theme for this quarter, with prices being pushed and prodded around by OPEC / NOPEC compliance; prices are already getting shaken up like a snow globe. Hark, here are five things to consider in oil and energy markets today:

1) The first few signs of production cut compliance from OPEC members are starting to filter through, with Kuwait and Oman seemingly putting their best foot forward. According to reports citing the Kuwait Oil Company’s CEO, it has cut production by 130,000 barrels per day, while Oman has also cut its output.

To counter this bullish-tilted news, Russian output in December is said to have held at record highs, while Libyan production is up to 685,000 bpd in recent days, more than double what it averaged in Q3 of last year.

As our ClipperData illustrate below, as with most of Arab Gulf producers, Kuwaiti crude exports predominantly head to Asia (>75 percent). South Korea is the leading recipient of Kuwaiti crude, followed by China. The U.S. is also a key destination, with nearly 230,000 bpd of Kuwaiti crude making its way to U.S. shores in 2016.

Kuwait crude exports jan 2017.jpg

2) There’s been a fairly decent dollop of economic data out, as is the way with a new month. China kicked things off last night, with its manufacturing PMI coming in at its highest since mid-2014 at 51.9. U.S. manufacturing followed suit, coming in mucho better than expected at 54.7. As we know all too well, all paths lead back to energy, hence as oil prices rise, preliminary German inflation data has reached its quickest pace since 2013.

3) Over the past two years, more than 70 North American energy companies have sold some $57 billion in shares, helping them to stave off bankruptcy. These companies have issued stock to help pay down debt and cover costs until oil prices have recovered, ultimately buoying their stock prices.

According to WSJ, these share offerings collectively ended 2016 more than $13 billion above their offering price. Nonetheless, more than 110 U.S. and Canadian oil producers have declared bankruptcy over the past two years.

fifty seven billion in shares.jpg

4) The chart below highlights how the how the Russian economy is inextricably linked to the fortunes of crude oil. Russia relies on oil and gas for approximately half of its fiscal revenues. Hence, as oil prices have risen from a decade low early last year, Russia’s default risk has dropped to a two-year low:

Russia default risk jan 2017.jpg

5) Finally, the chart below illustrates how the price of solar energy will likely be the lowest-cost option for electricity across the globe within the next decade, dropping below the price of coal.

Solar prices are down 62 percent since 2009, and IEA projects a further drop of 43 percent by 2025. As auctions for power-purchase contracts encourage increasing competition at lower costs, an increasing number of countries are turning to the renewable source.

solar costs jan 2016.jpg

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