This morning’s fanfare is not only for the first Nonfarm Friday of the year, but also in honor of David Bowie’s 69th birthday). And sure enough changes are underway in the market, as we approach the end of a most tumultuous week.
A sense of serenity returned to financial markets overnight (it’s all relative, folks), as circuit breakers were removed from China’s equity market, and it was allowed to roam freely. It initially sold off, before closing out with a near 2 percent gain. The crude complex laced up its rally boots overnight, but has loosened them again, looking to tread water once more.
It is the first Friday of the month, hence it is Nonfarm Payrolls – aka official U.S. unemployment data. Job creation last month came in at 292,000, much higher than the consensus of 200,000 – something that was alluded to by Wednesday’s blowout of a print from the ADP report. The unemployment rate remains at 5.0 percent, while the participation rate ticked just a smidge higher to 62.6 percent. All in all, a fairly encouraging report given the tempestuous nature of other releases this week.
Perhaps the most eyebrow-raising news for the crude complex today is the confirmation that Saudi Arabia is considering selling a stake in its state-owned company, Saudi Aramco. To put this in context, not only does Saudi Aramco produce ten percent of the world’s oil, it is estimated to hold 261 billion barrels in oil reserves. These reserves are more than ten times those held by Exxon Mobil….which has a market cap of $319 billion.
From one oil-producing behemoth to another, there is an excellent piece out on RBN Energy today about what to expect from U.S. crude exports in light of the recent lifting of the ban. The piece was written by ClipperData’s Nilofar Saidi, and is an absolute super-duper read (link is here).
On Wednesday we looked at how US Gulf coast crude imports are on the rise, despite the lifting of the U.S. crude oil export ban. This has been driven in recent months by a significant ramp up in Iraqi flows. The ascendance of Iraqi production amid Iranian sanctions in the last few years has meant that Iraq has surpassed Iran to become OPEC’s second-largest producer.
In terms of exports, they also continue to rise. While Iraqi exports from Basrah last month were expected to be a program total of 83 million barrels, they were in fact at 89 million, according to our ClipperData. The chart below shows the breakdown of exports by destination. While China and India accounted for approximately 40 percent of Iraqi exports last year – with a relatively even split at that – rising exports at the end of the year propelled the US into sixth place, behind South Korea (12 percent), Netherlands (5 percent) and Italy (5 percent).
Finally, a key theme in commodityland™ for 2015 was that of the thwacking of commodity currencies – from the lira to the loonie, from the real to the ruble. This theme is likely to be ongoing in 2016; those countries whose economies are inextricably linked to natural resources are set to see their currencies buffeted by commodity movements. With that in mind, I leave you with the below chart of the Norwegian Krone plotted versus black gold, Texas tea.
By Matt Smith
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