Crude Rises In Spite Of Poor Economic Data

Crude has just given up the ghost of a rally, as poor economic data weighs on broader market sentiment again. As the dollar rallies, despite waning rate hike hopes, crude is under pressure once more. Hark, here are five things to consider in oil markets today.

1) Today's post out on RBN Energy is by the mighty Abudi Zein, discussing how net U.S. crude oil imports remain stubbornly high. The piece highlights how it wasn't only Hurricane Hermine that contributed to last week's humungous draw to crude inventories, but also the Labor Day holiday slowing operations, as well as reduced imports ahead of the ad valorem tax assessment on September 1.

As the chart below illustrates, net imports since February have been up every month versus year-ago levels. Looking ahead, as Middle East producers continue to target the U.S. market, in combination with difficulty of selling U.S. crude overseas, it is more likely that we see a rise in net imports for the rest of the year than a drop.

2) From one fine fellow to another, John Kemp (@JKempEnergy) today has addressed the latest demand data out of India. Despite talk of 'wobbling' Asian demand from IEA earlier this week, gasoline consumption in India has climbed to a new record. Consumption increased nearly 15 percent between June and August on the prior year, averaging 550,000 barrels per day.

While growth is running at a fair old clip, it would be even stronger if consumers were buying more cars. Demand growth is instead being spurred on by motorcycles, which account for the majority of registered vehicles (hark, 133 million compared to cars, jeeps and taxis at 25 million). The vehicle penetration rate remains exceptionally low in India, at 149 motor vehicles per 1000 people, compared to 781 per 1000 in the U.S.).

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3) Stat of the day comes from the Wall Street Journal, via a Brookings Institution paper, which concludes that cheaper gasoline prices in the last few years have not really boosted the U.S. economy. This is because the boost to consumer spending was offset by the detrimental impact to the oil and gas industry.

While consumption has been boosted by 0.61 percent due to higher discretionary income (h/t lower gasoline prices), investment has dropped by 0.62 percent due to lower drilling activity.

4) Markets are getting a little bit excited about the prospect of returning flows from both Nigeria and Libya in the coming weeks, we would encourage caution given the recent false starts in recent months (Nigeria) and years (Libya). Nonetheless, a hypothetical return to the same export volumes of early 2013 would mean an adtitional ~1mn bpd - a mouth-watering prospect for the bears indeed.

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5) Finally, on Tuesday we looked at the wacky price moves in UK day-ahead power, which increased to its highest level in over three years...after being negative just two days earlier. Coal prices have been on a similarly wild ride of late, highlighted in the chart below. Related: Will Saudi Aramco Be Able To Lay Its Hands On Houston Refinery?

Coal imports have been ramping up into China, due to strong demand from the steel industry, in combination with lower domestic output. As China has tried to curb both its overcapacity and pollution, coal output from the leading emerging market has dropped considerably this year.

As highlighted in yesterday's IEA report, China's coal plants ran less then half the time in the first half of this year, due to both overcapacity and slowing growth in electricity demand.

As fundamentals have tightened, a potential short squeeze, as well as supply disruptions in Australia, have encouraged Australian coking coal prices to double in price in short order. While prices are expected to ease again in the coming months as elevated prices spur on a production response, ongoing supply issues - such as a freight train derailment in Queensland in recent days - are likely to support prices in the near-term.

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By Matt Smith

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