Oil rebounds as dollar weakens

Jun 28, 2016 11:07:06 AM EST

After the bloodletting across energy commodities, equities and various currencies in recent days, today is the day we have a relief rally, with markets are seeing an inevitable rebound. Hark, here are five things to consider in oil markets today.

1) @ClydeCommods revisits the Chinese conundrum, and again draws the same conclusion that he did back in mid-May; it is the same view as what our ClipperData is telling us: Chinese stockpiling is rampant...demand less so. He points out that if you take domestic output and imports and subtract refinery throughput, you get an idea of how much crude is going into stockpiles: 941,000 barrels per day so far this year.

While domestic production is dropping off, it is still only down 4%, or 170,000 bpd so far this year. In contrast, total crude imports are up 16.5% through May. Our ClipperData show Chinese waterborne imports up 16% year-on-year for the past four months, but are showing signs of slowing in June - up less than 6%. Clyde concludes that China is more of a worry for crude prices than Brexit...we have to agree.

China waterborne imports ClipperData

2) Recent strikes in France took as much as 900,000 bpd offline at one point in June, and have encouraged ARA crude inventories (Amsterdam, Rotterdam, Antwerp) to reach a record high. There has been a struggle for this unwanted crude to find a home, with this best exhibited in the changing price structure for North Sea contracts for difference. The curve has flipped from showing tighter supply and stronger near-term pricing (aka backwardation) to showing weaker demand and stronger long-term pricing (aka contango):

North sea discount

3) We are now seeing strikes pop up elsewhere in the world, with 24,000 Argentinian oil workers striking over wage demands yesterday; the strike was expected to impact crude output. Meanwhile, Norwegian 7,500 oil and gas workers are threatening union strikes, also demanding a new wage deal. This is being suggested as a bullish influence on the market today, which seems somewhat odd.   

4) On the economic data front, we have seen the latest revision to U.S. GDP, with Q1 being revised up to +1.1%, better than the prior +0.8% estimate and the +1.0% expectation. To counter this wee bit of positive news was weaker consumer spending, although consumer confidence for last month was strong. The big bad daddio of housing, the S&P / Case Shiller Index, showed house prices rose 5.4% YoY in April, in line with consensus.

5) Finally, the IMF has recently cut its forecast for the U.S. economy, and paints a fairly downbeat picture. This piece highlights six reasons why the IMF's outlook is so grim; the chart below presents one of these reasons, showing how U.S. businesses are exhibiting slowing improvements in productivity and efficiency. On the average, they are becoming less dynamic.

productivity decline

 

About the Author

Matt Smith

deciphers and distills what is most relevant across the energy complex into cohesive and pithy knowledge you can use. The belly laugh is a bonus.

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