On Tonya Harding’s 45th birthday, the crude complex is on thin ice once more. The U.S. dollar is in ascendancy as the sturdiness of the European economy is questioned once more, while OPEC’s monthly oil report has done little to allay oversupply fears.
Jumping into the data action overnight, and Chinese economic weakness manifested itself again, this time in new loans. Loan growth slipped to 513.6 billion yuan in October, while a considerably larger 798.2 billion was expected – this is just a third of what it was three months ago. The chart below, however, from Capital Economics explains the glass half-full perspective on this, saying that credit weakness is generally seen in October, and that outstanding credit is still accelerating year-on-year, which is the main thing:
European Central Bank President Mario Draghi has been talking down the euro again today by talking up the prospect of further stimulus in the coming months. The euro is accordingly kicking around seven-month lows again, and weighing heavy on the crude complex. This rhetoric was hot on the heels of Eurozone industrial production data, which fell -0.3 percent in September on the prior month, a second consecutive monthly drop. Going glass half-full once more, upward revisions to previous data meant the year-on-year number came in up +1.7 percent, beating consensus of 1.3 percent. Related: Can Fuel Cells Help Clean Up China’s Air?
In other releases overnight, Australia saw the largest number of jobs created since March 2012, while retail sales out of Brazil were weak, but not as bad as expected (-0.5 percent MoM, versus -0.8 percent consensus). Indian industrial production disappointed, while inflation rose to 5.0 percent (YoY), but in line with consensus. U.S. weekly jobless claims came in at 276,000 for the second consecutive week, but below consensus of a lesser 270,000.
Onto today’s monthly oil report from OPEC, and the cartel has left its demand forecast unchanged from last month, expecting 1.5 million barrels per day of oil demand growth this year, moderating to +1.25 mn bpd in 2016. In terms of supply, OPEC production dropped last month by a fairly sizable 256,500 bpd to 31.38 mn bpd, overwhelmingly due to a 195,400 drop in Iraqi production.
This drop is being attributed to fighting in the north and inclement weather in the south of the country, where most oil is loaded onto tankers (this explains away lower exports, not lower production). Saudi Arabia also saw a drop of 72,200 bpd (although based on direct communication their production ticked higher by 50,000 bpd). Kuwait saw a drop of 44,500 bpd, while Libya saw a rebound of 52,800 bpd.
There is a distinct drumbeat building for a theory we wrote about a good number of weeks ago – that the global market could be saturated. We have been seeing this in our #ClipperData, and current headlines such as ‘Oil Tanker Traffic Jam Off Texas Is Viewed as Sign of Oversupply‘ indicate its growing prominence.
OPEC addresses the issue of rising global inventories in its latest report, highlighting how global oil supply has risen by 2.5 mm bpd (YoY) through the first three quarters of this year, while demand has increased by 1.6 mn bpd (YoY). The disparity between the two implies a stock build of 900,000 bpd, affirming the build we have seen in global inventories over this period. The overhang for global inventories is now 210 million barrels over the five-year average. Related: 2-Mile Long Stretch Of Iraqi Oil Tankers Bound For U.S. Shores
Although inventories are getting worryingly high, the cartel is pinning its hopes on ongoing strategic stockpiling by China and India, a colder-than-expected winter, and improving economic activity to help alleviate the overhang…and support prices into next year.
(Click to enlarge)
By Matt Smith
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