To celebrate Pee Wee Herman’s 63rd birthday, markets are having their own big adventure today. Overnight equity markets have been racing higher, catching up with yesterday’s effervescent rally in the US. Just as we saw a vicious cycle of selling earlier in the week, positive sentiment is traveling across the time zones like a game of pass the parcel. Risk aversion exits stage-right (hey ho, the VIX is dead, the wicked VIX is dead…), and the fears from earlier in the week are seemingly forgotten. Hum dee dum.
The crude complex is getting swept up in this optimism and indulging in a decent rally, even though fundamentals remain soft – a view affirmed by yesterday’s EIA data. In terms of economic data, Eurozone money supply (hark, ECB President Mario Draghi’s favorite chart, apparently) increased at its quickest YoY rate in six years, up 5.3%.
Across the pond, here in the US we saw jobless claims dip for the first week in five, coming in at 271k (versus 274k expected); good news. Further good news has arrived via an updated print for US GDP for the second quarter, which showed economic growth of 3.7% QoQ, above both consensus of +3.2% and the initial print of +2.3%. Related: How To Profit From Crashing Oil Markets
US GDP Q2 preliminary (source: Investing.com)
Taking a look at more crude specific stuff, yesterday’s EIA report highlighted that total inventories of crude oil and refined products reached a record of 1.283 billion barrels. This comes amid a backdrop of US crude stockpiles potentially reaching a record 500 million barrels this fall should US production continue to show a shallow correction, while a deep refinery maintenance season this fall would mean refinery demand would fail to mop up enough of the ongoing supply glut. Related: Some Small But Welcome Relief For WTI
Despite the whiff of optimism in broader markets in the last, ooh, 18 hours, it’s not all wine and roses in commodity markets; the recent rout from copper to crude has served to shine a greater light on the financial frailties within these markets. Debt levels for the top ten largest mining companies are close to an all-time high at $145 billion, while profits are set to come in at their lowest since 2009.
Yesterday’s deal betwixt oil services company Schlumberger and oil equipment company Cameron is indicative of a wave of consolidation that is underway in the oil and gas industry; one which is unlikely to have crested yet given the deterioration in recent market conditions. Hark, global energy M&A is riding high: Related: Why Today’s Oil Bust Is Not Like The 1980s
By Matt Smith
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