Floor hands Jose Garza, left, Jose Salinas, center, and Omar Cano make a pipe connection on Orion Drilling Co.'s Perseus drilling rig near Encinal in Webb County, Texas, U.S., on Monday, March 26, 2012. The Perseus is drilling for oil and gas in the Eagle Ford Shale, a sedimentary rock formation underlying an area of South and East Texas. Photographer: Eddie Seal/Bloomberg *** Local Caption *** Jose garza; Jose Salinas; Omar Cano
© Bloomberg

Concerns about a growing oil supply surplus last year prompted Saudi Arabia, the world’s largest exporter, in November to persuade fellow Opec members that cutting production to support oil prices was not in their interest. The Kingdom said a period of lower prices would shave off some US shale production and other high-cost output and protect Saudi Arabia’s (and in theory the cartel’s) market share.

With the oil market focused on the impact of the plunge in oil prices on supply as well as demand, traders are on tenterhooks. Some are even grumbling that they have to hang around on Fridays for the weekly US rig count announcement — a data point that could provide hints about where oil output is heading particularly in a volatile oil market. But what else is on the list of potentially market moving data?

Monthly reports from the IEA and Opec

Both the International Energy Agency — the wealthy nations’ energy watchdog — and Opec are forecasting higher demand for the cartel’s crude this year in a sign that Saudi Arabia’s strategy is working.

Oil market analysts will be keeping a close eye on the monthly reports from both bodies for: demand for Opec crude, non-Opec production (in particular US shale oil) and global demand growth for understanding market balances.

EIA weekly petroleum report

Published every Wednesday by the US Energy Information Administration, the report is a treasure trove of US oil data, but is watched especially for its crude oil inventory and production numbers.

The US government’s numbers for nationwide inventories as well as at Cushing, Oklahoma, the delivery point for West Texas Intermediate crude, are in focus, while traders are watching when the price declines and fall in rig count will start affecting production. In the latest weekly report, overall commercial inventories in the US were at a record high, as was production.

Saudi Arabia Official Selling Prices

These monthly figures released by Saudi Aramco, the state-owned oil company, are one of the most misunderstood oil market data points.

The kingdom sells most of its crude oil on long-term contracts, which are priced off regional benchmarks — the Dubai/Oman average in Asia, Argus Sour Crude Index (ASCI) in the US, and the weighted average of Brent (BWAVE) in Europe.

The OSPs, or export prices, are either fixed at a premium or discount to the benchmarks. This is known as the differential.

When Aramco cut the differentials for Asia and the US in the second half of last year, commentators hailed the start of a price war between Saudi Arabia and fellow Opec members as well as those outside the cartel.

However, the differential is more likely to be a reflection of demand from refiners in different parts of the world and consumption of oil products such as gasoline or diesel.

Using a formula known as netback pricing, the OSPs link the revenue of the producer to the final market price for products such as diesel or gasoline. Saudi Arabia adjusts its OSPs to ensure its oil remains competitive and customers (the refiners) continue to buy its oil.

Hence a cut in the differentials suggests weak demand and a hike, strong consumption.

Corporate data watch

“We are having to behave like equity analysts,” says an exasperated oil analyst, as many of his peers are now forced to closely follow any corporate announcement which may offer an indication of a supply fall.

The latest set of quarterly earnings have already highlighted spending cuts, staff reductions and asset write-offs across energy players such as Royal Dutch Shell, Chevron and Apache as well as services companies Schlumberger and Baker Hughes. Any updates to these numbers will be watched keenly as well any news on buyouts and bankruptcies, debt restructuring and drilling cutbacks.

This article is part of an online series on commodities made easy

Further reading: Crude prices rally as Opec predicts rise in demand for its oilCrude climbs as oil majors cut spendingSharp drop in US rigs drilling for oilMarket’s focus on Saudi pricing is undue

Also read:
Commodities explained: Oil and rig counts
Commodities explained: Cost curves
Commodities explained: The price-supply disconnect
Commodities explained: Qingdao
Commodities explained: Contango

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