Oil At 60
The crude oil market got caught up in the phase one holiday mood, closing back above $60.00 a barrel for the first time since the drone attack on Saudi oil facilities. Progress on trade and assurance that we would not see new Chinese tariffs go in effect on China added to the lofty price levels. That raises hopes that we can see more progress in phase 2 of this agreement. Perhaps China can add to some of the economic momentum as they have received their influx of economic stimulus.
The Wall Street Journal reported better-than-expected data released on Monday morning in Beijing—together with a limited trade deal announced by Beijing and Washington on Friday—could alleviate concerns about downside risks for the world’s second-largest economy. The Journal says that, "Value-added industrial output for November rose 6.2% from a year earlier, accelerating from a 4.7% year-over-year increase in October, the official National Bureau of Statistics said. November’s reading easily topped the 5% increase predicted by a Wall Street Journal poll of 15 economists. China’s retail sales climbed 8% in November from a year earlier, compared with October’s 7.2% increase. That beat a median forecast for 7.6% growth."
China's oil demand should only get better with data like that. Not that it is too shabby now. A U.S.-China trade deal should also benefit LNG exports from the U.S.. With the U.S. approving more LNG projects, a likely destination is China.
Saudi Aramco (SE:2222) hit its 2 trillion dollar target but what about the economy? MEES reports that Saudi Arabia published its 2020 budget on 9 December, confirming the expected $50bn deficit set out in October’s pre-budget statement. Driven by a pessimistic 2020 oil market outlook, this is considerably higher than the finance ministry’s expected $35bn 2019 deficit.
The key driver is a sizable $24 billion cut in expected oil revenues, which are budgeted to fall to a three-year low of $137 bn in 2020. MEES calculations suggest the budget is based on an oil price of just over $55/B, almost $10/B lower than the actual average price of $64.74/B for Saudi Arabia’s key Arab Light grade for the first 11 months of 2019.
Marketwatch reported on Friday that Baker Hughes BKR has a number of active U.S. rigs drilling for oil that rose by four to 667 this week. That followed declines in each of the last seven weeks. The total active U.S. rig count, meanwhile, was unchanged from last week at 799, according to Baker Hughes.