Oil Edges Up After Biggest Draw In U.S. Crude Stocks This Year

Today we celebrate polytetrafluoroethylene, for it is national Teflon day. Accordingly, the crude complex is refusing to stick to the script, and is rallying again amid ongoing global oversupply. Hark, here are six things to consider in the oil market today:

1) Despite a stronger dollar (aka a weaker euro), crude is rallying strongly today on comments out of Kuwait that a production freeze could still take place without the participation of Iran. Given that prices have rallied nigh on 50 percent since the start of talk about a production freeze, producers are almost incentivized to keep the rumor mill cranking. Related: Oil Prices Slide On Falling Hopes For Output Freeze

2) Last night's API report has also added to the bullish hue of the oil market today. We discussed last week how the API numbers can differ wildly compared to the EIA's report; since the beginning of last year, the crude inventory number has varied by an average of 1.96 million barrels - something to bear in mind. Our ClipperData points to a ding in imports last week from inclement weather (fog in the Houston Ship Channel), combining with elevated refinery runs to pave the way for a lesser build or draw.

3) On the economic data front, China's Caixin services PMI followed the same trend as manufacturing data, coming in better than expected and rebounding on the prior month. German industrial production fell on the prior month by 0.5 percent, but was still better than expected. Data is light (well, non-existent) in the U.S. this morn, with Fed meeting minutes out this afternoon to shake, rattle and roll the US dollar. Related: Did Italy And Malta Actually Agree To Swap Oil Rights For Refugees?

4) This great piece from the mighty @JKempEnergy provides some nifty stats. It highlights that lower coal-fired power in the generation mix has materially helped reduce diesel demand, because it has hit the number of railcars transporting coal to power plants. Railcars accounted for 6 percent of diesel demand in 2014, while coal accounted for 38 percent of all tonnage carried by rail. Kemp also highlights how lower drilling activity is impacting diesel demand, given lesser need for diesel-fired generators.

5) In a similar vein, this piece today in the WSJ, highlights that class 8 truck sales are down 37 percent YoY in March, as freight slows. As inventories build at dealerships, lesser freight demand may too filter through to diesel demand. Related: $120 Oil As Soon As 2018?

6) Finally, yesterday we looked at the surreal situation of negative interest rates in Japan. A low interest rate environment prevails across the globe, with the yield on the BAML global bond index down to 1.3 percent, the lowest since records began nearly 20 years ago. As central banks have rolled up their sleeves to battle against deflation, this bond yield points to a global inflation rate of just 1.1 percent. Commodities have played their part in the global disinflationary move seen in the last year, and low energy prices should help to keep inflation in check going forward.

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By Matt Smith

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