Ok, well crude careened lower about an hour ago, seemingly out of the blue.
You’re reminded that oil hit an 8-week high on Wednesday, buoyed by EIA data which largely confirmed Tuesday’s bullish API numbers, jitters about Venezuela, and promises of a cap on Saudi exports.
After the bell, we learned that Whiting is cutting its 2017 budget by 14% to $950 million. That came one day after Anadarko announced plans to cut spending.
So that’s all ostensibly bullish, but again… this:
“Brent falls below $51/bbl, WTI below $48.50 as trading activity spikes,” Bloomberg writes, before noting that “WTI volume surged to 5,138 contracts traded at 12:10pm in London and day-high 5,345 at 12:53pm; Brent trading activity mirrored WTI momentum.”
For what it’s worth, Goldman was out with something this morning called “Green Shoots In The Oil Market.”
Below, find some excerpts…
While OPEC’s production path remains uncertain, recent fundamental oil data have come in even better than we had expected. Strong demand, even better than our above consensus expectations, is particularly noteworthy as it can help absorb the recent decline in production disruptions. If sustained, these trends would help achieve the normalization in inventories by early next year, which was our base case before the surprisingly large rebound in Libya/Nigeria production in mid-June.
- Inventory declines are accelerating. Through only three weeks in July, weekly data in the US, Europe, Singapore and Japan point to inventory declines of 83 million barrels (mb) since March vs. seasonal builds of 27 mb, with this high frequency data implying that half of the excess stock rebalancing has been achieved. Our supply and demand forecasts point to sustained draws through 3Q, although higher US, Brazil, Canada and Libya production should reduce the pace of draws into year-end.
- Demand is beating low consensus expectation. We have long held a strong 2017 oil demand growth forecast, driven by robust economic activity and low prices. Although reliable demand information is lagged, May and preliminary June data corroborate our above consensus forecasts, with Europe, the US, India and China driving consumption higher. We expect such strong demand growth to remain in place in 2H 2017, consistent with current strong refining margins.
- Shale activity is beginning to slow. We expected the decline in prices to near $45/bbl over the past couple of months to gradually translate into lower US activity. This is occurring with the US horizontal oil rig count declining for two consecutive weeks and a couple of producers reducing their rig count guidance during the just started US earnings season. Admittedly, this decline is only modest and the current rig count of 653 remains above the 600 level that we believe can allow for higher OPEC revenues and market share next year.
- Disruptions are normalizing. Libyan production continues to ratchet higher, now at 1.05 mb/d, with the cease-fire reached between the two local governments potentially allowing production to reach the year-end 1.2 mb/d target. This is, however, now offset by renewed disruptions in Nigeria, with the Bonny Light crude stream once again offline. Disruption may further pick up in Venezuela given the ongoing tensions.
- OPEC cuts are supported by rhetoric and flows. Aggregate OPEC production is up since May on higher Libya/Nigeria and Iraq volumes. Compliance among the core producers – which are ultimately the ones driving the cuts – remains strong, however, with these producers reiterating their commitment to the cuts on Monday and Saudi Arabia and UAE explicitly targeting lower exports in coming months. While larger cuts may be required if the recovery in Libyan production is sustainable, Nigerian disruptions and stronger than expected demand can also help absorb this additional supply