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Oil Falls As IEA Report Cannot Offset Strong Dollar

Oil Rig

One hundred and eighty-two years to the day after Isaac Fischer Jr. patented sandpaper, and the oil market is looking a little rough once more. Getting into the nitty gritty, crude is being ushered lower thus far today by a stronger dollar (h/t impending Fed meeting, Brexit fears), while a seemingly supportive IEA report has been unable to buoy prices. Hark, here are five things to consider in the oil market today:

1) Today’s IEA oil market report is providing the market with some mixed signals; the agency has boosted its demand growth expectation for this year to +1.3 million barrels per day, but said prices should be kept in check by high inventories and the prospect of returning production after outages:

(Click to enlarge)

Days of Cover / Inventories (source IEA, @chris1reuters)

The agency sees supply disruptions and strong demand bringing the market closer to balance; it estimates outages cut oil supplies by 800,000 bpd in May, narrowing the gap betwixt supply and demand. Nonetheless, it expects we will not see balance until 2017.

(Click to enlarge)

2) On the economic data front, highlights have been abound; Japanese industrial production for April came in at +0.5 percent versus the prior month, better than expected, while the same data point for the Eurozone was upbeat too (at +1.1 percent MoM). Inflation data out of the UK remains soft, below consensus at +0.3 percent YoY for May – but in inflationary terrain, which is more that can be said for Italy and Spain, which are still negative at -0.3 percent and -1.1 percent YoY, respectively.

Across to the Americas, and Brazilian retail sales were below consensus at +0.5 percent MoM, while in the U.S. the same print was above expectations; receipts from gas stations kicked higher by 2.1 percent, with a hat-tip to higher gasoline prices.

3) The German 10-year government bond yield has turned negative for the first time ever. This means that if you want to own a German government bond for ten years, you need to pay the German government for the privilege. As economic concerns return, and as Brexit fears rise up, a flight to safety has taken an unprecedented step. We are also nearing a record low yield on the 10-year Treasury, while the 10-year Gilt is already there. Related: OPEC Sees Oil Markets Balance Later This Year

(Click to enlarge)

4) As U.S. oil production has drifted lower over the last year or so, a greater percentage of West African (WAF) crude exports (think: Nigeria, Angola) have been making their way to U.S. shores. Our ClipperData show West African crude exports in absolute terms have ticked higher through the first five months of this year compared to 2015, while exports to the U.S. have almost doubled to average over 400,000 bpd. So far in 2016, the U.S. accounts for 8 percent of total WAF volumes.

5) Finally, U.S. natural gas prices reached an eight-month high yesterday as the latest NOAA forecast lays a blanket of above-normal conditions across the entire U.S. over the coming weeks. The prospect of a hot summer and production dropping off has awoken the bears from hibernation, and natural gas finds itself of the upper side end of mid-two dollardom. Related: Despite Robust Demand Is Oil Set To Fall Once Again?

Concurrently, we are seeing Asian LNG prices on the rise too. This is for a different reason, however, as Asian prices are being boosted by their link to oil prices, being dragged higher by its recent multi-month rally.

(Click to enlarge)

By Matt Smith via ClipperData.com

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