After a couple of days of rampant rallying, crude is heading lower once more amid a stronger dollar (read: a pound walloping). Hark, here are five things to consider in energy markets today.
1) JP Morgan is the latest entity to draw attention to the fact that the pace of Chinese crude imports is unsustainable. While they point to a potential pullback in teapot refinery utilization and slower demand as reasons for Chinese crude imports to slow - the key driver is the fact that China's strategic petroleum reserve is close to full.
The bank estimates that the surplus crude going into inventories is around 1.2 million barrels per day this year, and that total capacity for stockpiles is at 511 million barrels. At the current pace, storage would be full by August.
2) On the economic news-flow front, we've had a good ole dump of data today. German retail sales in May improved on the prior month, up +0.9% (vs. +0.7% expected), while unemployment remained at a record low of 6.1%.
Across to Brexit-bruised Blighty, and revised UK GDP for Q1 was inline with prior estimates and expectations, up +0.4% QoQ, +2.0% YoY. Preliminary Eurozone inflation data for June has clambered away from deflationary terrain, up (a whopping!) +0.1% YoY.
Onto the U.S., and weekly jobless claims were just shy of expectations at 268,000, while the Chicago PMI blew the doors off expectations, coming in at 56.8 - the highest level since January 2015.
3) Yesterday we discussed how natural gas prices are on a charge higher, led by warmer weather outlooks. Despite the recent rally in natural gas prices, electricity prices are 40 percent lower at the nation's largest grid than five years ago.
As the chart below illustrates, coal plant closures have been widespread; 36,000 megawatts of coal capacity has come offline since 2011. But natural gas capacity additions have more than offset this.
Capacity additions for natural gas are set to continue apace. Before the end of the decade, 20,000 megawatts of gas-fired plants - enough to power 20 million homes - is set to come online. The switch from coal- to gas-fired generation has already cut U.S. greenhouse gas emissions to 21 percent below 2005 levels.
4) As the chart below illustrates, the gasoline crack spread is considerably lower than any level seen in the last five years ahead of the July 4th holiday weekend, despite gasoline demand kicking around record highs.
This is because gasoline inventories are super-strong at nearly 240 million barrels, some 10% higher than last year's level and nearly 7% higher than the five-year high. The lower crack spread is also indicative of swollen oil inventories; crude stocks are 13% higher than last year's level...or 61 million barrels.
5) Finally, contrasting stories are being pitched relating to Saudi Arabia's current tactics - and whether it is finally quitting its pursuit of market share. One piece suggests Saudi is conceding market share in key Asian countries, while another suggests the Kingdom is cutting its official selling price for crude into Asia and the U.S. in August in a renewed effort to steal market share.
When in doubt, back to our ClipperData we go. As the chart below illustrates, Saudi exports to China, Japan, India and South Korea account for just under half of total Saudi crude exports. Combine with exports to the U.S., and this number is well over 60 percent. Despite a relatively weak month so far of exports to these five nations, their share has been holding its own so far this year at close to 4.7mn bpd, up nearly 9 percent on the year prior.