–Has this last price drop started to impact drilling activity? The latest rig count from S&P Global Platts indicates it has. The rig count reported by Platts dropped last week to 1,137, a drop of 28 and the lowest level since April. All that decline came from rigs that were drilling for oil, as opposed to natural gas or a combination of oil and natural gas. The numbers are still more than last year at this time, however.
–During the recent market decline, commodity diesel prices trailed the market. For example, based on CME data, on December 19 the spread between ultra low sulfur diesel prices to crude oil stood at 28.6, meaning the value of one barrel of ULSD was $28.60 more than the value of a barrel of crude. By December 27, it had fallen to 25.9/barrel. On Friday the gap stood at $24.58/b. The lag in the diesel market evidenced over the past few days might be a function of end-of-year tax selling. Petroleum Argus reported: “Part of the weakness on the US Gulf Coast comes from an effort to clear taxable inventory before the end of the year. Texas’ ad valorem tax tends to prompt a sell-off from Gulf coast refiners, and this year’s impact was particularly severe.”
–South of the border, Mexico’s slow deterioration of its oil position continues. Its oil output in November declined 2.7% from just a month earlier to approximately 1.71 million b/d. In 2013, it averaged 2.52 million b/d. The grand experiment with outside investment is starting to look like a flop and with current President Obrador essentially hostile to that initiative, it’s not clear what can turn around this long slide. State oil company Pemex itself has predicted output to fall to less than 1.6 million b/d by the end of 2019 barring a dramatic turnaround.
–Any sort of commodity trading is ultimately a zero-sum game. The winners aren’t always traders; they can be individual motorists or truckers or railroads who are now seeing their fuel prices slide. But it’s not always easy for the losers. Last month, the head of a natural gas-focused trading firm released this remarkable video in which he emotionally tried to apologize to his clients for what he had lost in the natural gas market, mostly over the course of a mere week. And with the decline in oil over the last few weeks came the report that two leading officials at Chinese trading company Unipec had been fired as a result of a bet on rising oil prices, according to multiple news reports. The two were identified as Chen Bo, Unipec president and Zhan Qi, the Communist Party secretary. The irony is that China has net import dependence of about 65%, while the U.S. is down near 12%. As the world’s biggest importer, it benefits more than any other country by a decline in the price of oil. Yet its biggest trading company apparently was long and looking to benefit from higher prices.