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Matt Smith

Matt Smith

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Oil Fluctuates As U.S. Crude Import Surge And Refining Margins Fall

May the fourth be with you, my friends – for it is national Star Wars day. Accordingly, the forces of good and evil (the bulls and the bears – you pick which is the baddie) are involved in an epic battle. Here are five things to consider regarding crude today:

1) Jumping straight into the data (like Han and Chewie into an intergalactic dog-fight), we have had a deluge of global PMI services numbers. The Eurozone print on the aggregate came in just below expectations at 53.1 (>50 = expansion), boosted by Spain and Italy – but ultimately held back by France and Germany. Eurozone retail sales have also come in weak, down 0.5 percent on the prior month, and up a tepid 2.1 percent YoY.

Brazil’s services data has been just as disappointing as its manufacturing number, coming in at the lowest since at least 2011. The U.S. data has bucked the trend, with its service PMI coming in at 55.7, a good distance from the consensus of 54.7. Related: Why Oil Prices Will Likely Drop Below $40 Soon

2) This article in today’s Wall Street Journal is powered by our ClipperData, highlighting how the U.S. is importing more foreign oil. We have been highlighting recently how U.S. crude imports reached an 11-month high of 1.28 million barrels per day in March. Since the beginning of last year through last month, we have also seen Iraqi exports averaging over 240,000 bpd, and Kuwaiti exports averaging 225,000 bpd, as imports from the Middle East rise to 1.8 million bpd in recent months:

(Click to enlarge)

3) Another good piece in today’s WSJ is about the flagging fortunes of the oil majors, as highlighted by their latest quarterly results. As refining margins have come under pressure in the last quarter, profits from refineries have plummeted for key fuel producers. Related: A 4.5-Million-Barrel Per Day Oil Shortage Looms: Wood Mackenzie

Exxon has seen profits from its refineries fall by 46 percent YoY in Q1, while Chevron’s have dropped by 48 percent; Valero’s Q1 results, which came out yesterday, showed earnings dropped by 49 percent YoY in Q1. Even if gasoline demand remains strong in the U.S. – as it is expected to – rising global product inventories are likely to keep margins under pressure going forward.

4) Shell’s latest quarterly results have fallen in line with what we have heard from the other majors; its profit fell precipitously on the prior year, dropping 58 percent to $1.6 billion (or a drop of 83 percent to $800 million, if not adjusted for one-time items and inventory changes). Capex cuts are also a familiar theme, with capex at $30 billion this year, down 10 percent from previous guidance, and 36 percent lower than the combined investment of Shell and BG in 2014. Related: Another Major Natural Gas Pipeline Project Bites The Dust

5) Finally, yesterday we discussed how Australia had cut interest rates amid ebbing inflationary concerns. The chart below highlights the somewhat surreal situation of how low rates are …or non-existent…or negative. Compared to the ECB’s level of 0 percent, or Japan’s negative rate of -0.1 percent, Australia’s rate of 1.75 percent appears incredibly attractive. The role of loose monetary policy is set to be an ongoing influence on commodities, given the oscillations it causes in global currencies.

(Click to enlarge)

By Matt Smith

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