The discussions in Vienna could become quite interesting this week, particularly on the second day when Russia joins Saudi Arabia and other OPEC producers in discussions about production cuts. Saudi Arabia has signaled it wants OPEC+ countries to adhere more closely to the production cuts they agreed a year ago (and subsequently extended six months ago), but it will have little leverage over Russia, a serial offender when it comes to exceeding its quotas.

Russia is not the only country that has been dragging its feet in meeting lower production targets; at least three other member states have simmering political problems at home and will be less than keen to see state incomes dwindle. However, for Saudi Arabia, propping up the oil price is becoming more urgent as state-owned producer Aramco is about to IPO. The publication of Aramco’s final IPO price on 5 December, the day OPEC goes into session, will add extra pressure to the output discussions.

Beware electric car sales

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In a world beyond OPEC – and there is such a thing for oil – further forward contracts are likely to be more influenced by electric car sales than just the issue of how much oil is pumped out of the ground.

In the US, transportation now makes up 73% of the total petroleum consumption. Cars, trucks and buses account for 60% of the total demand, distillate fuel oil 24% while jet fuel makes up a modest 13%.

Electric car sales have seen explosive growth this year, expanding by 125% year-to-date. Car makers are gearing up for bumper sales in 2020 with BMW, Audi, Ford and VW all putting out new models. Most of the models are far from geeky – bar the small Honda e – they have managed to shake off their somewhat tree-hugging image of the early days and are ranging from sports cars to SUVs. The pendulum of demand is clearly swinging in the direction of electric as demonstrated by Daimler who decided to cut 10,000 jobs worldwide in order to free up money for the costly development of electric vehicles. In the UK currently one in every ten cars sold is an electric or hybrid car, which means there is a vast scope for growth against traditionally petrol fueled cars.

Misleading rig count

Though the weekly Baker Hughes US rig count makes for catchy headlines and a quick trade signal, but the number of rigs in operation alone is misleading as a tool for analyzing US supply. Last week’s number is a case in point: The number of active US rigs fell by 3 to 671 in the week ending 22 Nov marking the fifth consecutive decline. More importantly the number of active rigs in the US has dropped by 276 over the last twelve months. And yet, US output has risen from 11.7m barrels per day to an all-time high of 12.8m bpd since the beginning of this year.

The next set of numbers are due out on Friday, as is Baker Hughes’ international rig count which is released once a month, but both of these figures should be scrutinized a bit more closely to make for a meaningful signal.

When What Why is it important
Monday 1 Dec CFTC Commitment of Traders report Delayed from last week because of Thanksgiving
Tuesday 2 Dec API weekly crude oil stocks Last at 3.639m
Tuesday 2 Dec US total vehicle sales Key demand data
Wednesday 3 Dec US crude oil inventories Last 1.572m
Wednesday 3 Dec EIA weekly refinery utilization rates Last -0.2%
Thursday 5 Nov German factory orders A barometer of industrial demand
Thursday 5 Nov Eurozone Q3 GDP Indicator of health of Eurozone demand
Thursday 5 Nov OPEC meeting starts in Vienna Saudi Arabia expected to push for higher compliance from other members
Thursday 5 Nov Saudi Aramco will set final IPO price Start of trading expected mid-December
Thursday 5 Nov US jobless claims Taking the pulse of US economy
Thursday 5 Nov US trade balance, October Useful for analyzing the impact of US-China trade balance
Friday 6 Nov Non-OPEC ministers join OPEC Russia and other OPEC+ countries will join official OPEC production discussions
Friday 6 Nov Baker Hughes weekly US rig count Number of rigs declined in the last five weeks
Friday 6 Nov Baker Hughes monthly international rig count 1,130 in October, down 1 m/m
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DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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