One hundred and forty-one years to the day after the first Kentucky Derby was run, and crude oil's gallop higher has now slowed to a trot. As focus shifts towards the weekly inventory reports (a crude build? we say neigh...), here are six things to consider in the oil market today:
1) Diving straight into the data, highly volatile Japanese industrial production was, um, highly volatile - yet to the upside - as it improved +3.8% MoM in March (versus consensus of +3.6%). British inflation edged higher in April by the minimalist of margins (hark, +0.1%), leaving the year-on-year level clambering just +0.3% higher. The Eurozone saw its trade surplus widen in March, although it was driven by a decline in imports, as opposed to a greater appetite for exports (indicating weaker domestic demand).
2) Onto the US, and inflation data month-on-month came in at its quickest pace in more than three years, at +0.4% (versus +0.3% expected). As we know all too well, ALL PATHS LEAD BACK TO ENERGY, hence last month's rise was driven (yep, intended) by a jump of 8.1% in gasoline prices. Housing starts came in better than expected, while building permits were worse.
3) U.S. industrial production was better than expected, up 0.7% MoM for April - but tempered by a hugely huge downward revision to last month. Year-on-year, it has now notched up eight consecutive months of contraction. As we said last month (...and the month before, and the month before...), no wonder we are seeing diesel demand in check as the industrial piece of the U.S. economic pie remains under pressure.
4) As Nigerian crude production falls amid unplanned outages and and pipeline sabotage, Angola's production has now surpassed that of Africa's leading oil producer. According to OPEC's latest monthly report out last week, Angola's crude production in April was at 1.78 million barrels per day, while Nigeria's dropped to 1.64mn bpd. Our ClipperData show that the crude oil loadings for the two nations were extremely close in April; Angolan crude loadings should surpass those of Nigeria this month:
5) It has been revealed by the U.S. Treasury department that Saudi Arabia holds $116.8 billion off U.S. debt - up from $82.7 billion two years ago. This puts Saudi as one of the top ten foreign nations holding part of the U.S. Treasury market's $13.4 trillion of debt. China leads the way at $1.2 trillion, while Japan holds $1.1 trillion.
Saudi Arabia still holds $587 billion in foreign reserves, despite burning through 16% of them last year to help plug its budget deficit. Other key oil producers in OPEC also hold significant amounts of U.S. debt: UAE holds $62.5 billion, while Kuwait has $31.2 billion.
6) Finally, yesterday's drilling productivity report from the EIA showed projected losses across the board in June for oil production from shale plays. On the aggregate, production is expected to drop by 113,000 bpd from May's volumes. As the chart below illustrates, only the Permian Basin is now showing a year-over-year rise. Eagle Ford has dropped the most, down 24% year-on-year, or 382,622 bpd.