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Crude swept up in risk-on rally

May 25, 2016 10:21:00 AM EST
By: Matt Smith

genOne hundred and seventy-two years after Stuart Perry patented the gasoline engine, and oil is chugging higher once more. As a decent crude draw is expected from the weekly EIA inventory report, and as equity markets wistfully rally, crude is hot to trot higher. (although gasoline braces itself for a firm build). Hark, here are five things to consider in oil markets today.

1) We've had a sprinkle of economic data again out of Europe; the German Ifo business sentiment data contrasted with yesterday's downbeat ZEW prints, coming in better than expected for both current conditions and its 6-month outlook. Housing data out of the U.S. has affirmed yesterday's strong home sales numbers, with house prices rising 0.7% MoM in March, more than expected.

2) Someone was asking about this last week, so I thought I would refresh the chart. Since the beginning of last year, the API has been pretty good at directionally predicting the EIA's crude stock change - getting it right over 80% of the time. In terms of magnitude, it is a little less accurate - it has missed by an average of 2 million barrels each week. This difference is basically the noise that is generated betwixt voluntary and required reporting.

eia api

3) The chart below is from a piece by the always-engaging @liamdenning, highlighting how the share of output from 'Big Oil' has dropped below 9% of global supply, as independent E&P companies (think: shale producers) and NOCs such as Saudi Aramco ramp up production amid a battle for market share. Big oil's share of global supply has been dropping for a good number of years:

big oil4) As the drumbeat slowly starts to build ahead of the Federal Reserve's meeting next month, rising expectations for an interest rate hike is swiftly being priced into a strengthening dollar, and reverberating around commodityland™. As the graphic below illustrates, both precious and industrial metals have sold off strongly, while crude prices are holding up for now - buoyed by recent supply outages.

Speculative net-long positions in WTI are just shy of their highest level in a year; should the dollar continue to rise and supply outages be unwound, the crude complex should play catch-up to its other commodity comrades:

dollar and commodities

5) Finally, supply outages in Nigeria are occurring at the same time that US imports of Nigerian crude are at their strongest since April 2013. The East Coast (PADD1) continues to receive the lion's share of deliveries, with seven different grades arriving so far this month - including the troubled Qua Iboe, Forcados and Bonny condensate. The Gulf Coast (PADD3) has also received two deliveries this month -  one being Escravos, the fourth Nigerian crude grade seeing supply complications due to both unplanned outages and sabotage.

ClipperData US crude oil imports from Nigeria

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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