As OPEC members finally (finally!) gather in Algiers, market movement is set to be dictated by every word, facial expression and gesticulation – the like of which has not been seen since Janet Yellen in the last Federal Reserve meeting. Despite speculative short positions increasing in the latest data, a glimmer of hope for progress in Algiers is buoying prices. Hark, here are six things to consider in oil markets today.
1) After the force majeure on Bonny Light was lifted earlier this month, the bombing of an oil export pipelineby militants has taken the grade offline once again.
As our ClipperData illustrate below, export loadings of Bonny Light had ramped up this month to their highest since March, before this latest set-back. Exports of Qua Iboe have also been completely absent this month. These two grades accounted for ~500,000 bpd of Nigerian exports last year, but has been averaging below half that in recent months.
2) The latest CFTC and ICE data show a massive increase in bearish positions by speculators, as money managers lose faith in progress from this week’s gathering of OPEC members. The net-long position has not only been dragged lower by the addition of short positions, but by shrinking long positions also.
3) There’s a nifty graphic out by the FT today, which shows the August production levels of OPEC members versus their average through the first half of the year. As rumors and murmurs circulate about a potential production cut proposal from Saudi, the image below highlights that many have increased output this year.
With Libya, Nigeria, Iran and Iraq already indicating they support a production freeze – but are unwilling to participate – production ceilings above current levels seems the more likely development from the cartel; something which will have a minimal effect on the market.
4) As OPEC production on the aggregate continues to increase, the supply cushion that the cartel provides to the market continues to shrink. Spare capacity is now down to the lowest level since 2008, with EIA estimating it at just 1.1 mn bpd last month.
A lack of spare capacity could leave the market exposed to a price spike should there be a sudden material outage. One other cushion, however, comes in the form of OECD oil and product inventories – which sit at arecord 3.1 billion barrels, according to IEA.
5) The chart below is from an OPEC secretariat background paper for today’s IEF forum in Algiers, which takes a longer-term look at oil market developments.
The global population is expected to increase from 7.2 billion in 2014 to 9 billion in 2040, with the global economy expected to more than double over this period. Developing nations are expected to account for three-quarters of this growth, with China and India making up half of this growth.
Global energy demand is set to increase by 50 percent by 2040, with oil and natural gas expected to account for just over half of the global energy mix. The reference case expects demand to increase to 110 mn bpd:
6) Finally, ClipperData’s fearless leader, Abudi Zein, is presenting a webinar on Wednesday, titled ‘When will the oil market rebalance?‘. You can register here. Trust me, it will be well worth it.