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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Oil Price Recovery Seems Far Away As U.S Stockpiles Increase

Not only is today a glorious day for Arnold Palmer as he celebrates his 86th birthday, but it is also a red letter day for us here in Energyland™ – for September 10th marks the peak of the Atlantic hurricane season. As the ‘flame’ graphic illustrates below, we are pretty much assured of having a named storm in the Atlantic on this day based on history:

Accordingly, Tropical Storm Henri has appeared in the Atlantic to ensure we have our named storm. (As an aside, there be treasure, me hearties, in Sierre Leone, with ‘X’ marking the spot): Related: More Iranian Oil Could Hit The Market Now That Iran Deal Is Assured

We’ve had mixed signals out of China overnight, as inflation data (CPI) showed a 2% rise (YoY), which was above consensus and a 12-month high to boot. The devil is in the details, however, as food prices increased significantly by 3.7%, courtesy of a 19.6% surge in pork costs. This rise appears transient more than anything.

As for producer prices (PPI), they continued to adventure further into deflationary territory, to the most negative print since October 2009 at -5.9%. It has now been in negative territory since April 2012, 42 consecutive months:

China Producer Prices Index, YoY (source: investing.com)

(Click to enlarge) Related: The Oil Bust Is Great For Business Here

Economic data out of Europe has been equally mixed; Spain continues to show signs of improvement, with industrial production coming in at +5.2% YoY for July, the highest level since April 2010. To counter this positivitivity™, French industrial production contracted by -0.8% in July on the prior month.

Bad news from Brazil continues to be unrelenting; not only did Standard and Poors cut its credit rating to junk status overnight, but inflation data just out show a torrid increase of 9.53% (albeit just shy of consensus of 9.56%), the highest level since late 2003.

Today we have double data day on the EIA front due to Monday’s Labor Day, as we get the natural gas storage report at 10.30am EDT and the oil inventory report thirty minutes later. The natural gas storage report should yield an injection which should land smack-bang inbetwixt last year’s 90 Bcf and the five-year average of 63 Bcf.

Nonetheless, as storage levels are 15.5% above last year’s level and 4% higher than the five-year average, prices are happy to continue to tick around the middle of the $2.50 – $3.00/MMBtu range they have lulled along in all year long.

In terms of the EIA oil inventory report, a build of ~1 million barrels is expected for oil stockpiles, while gasoline is expected to show a minor draw. Last night’s API report yielded a build of 2.1 million barrels for crude, and a surprise 0.7 million build to gasoline inventories.

The crude complex is trying to rebound today after yesterday’s hearty thwacking, although a stronger dollar is tempering gains. Weekly jobless claims were in line with consensus at 275k, but better than (aka below) last week’s number, boosting the attractiveness of the US dollar, and deflating crude’s snap-back. Related: Does Selling Oil From The Strategic Petroleum Reserve Make Sense?

Despite ongoing oil demand concerns stoked by weak data out of Asia, geopolitical fears creep back onto the radar again amid rumors that Russian troops are involved in military operations in Syria, supporting government troops. Meanwhile, Iran is said to be stepping up its efforts to more aggressively market its oil into Asia next month, making prices even more competitive versus Saudi Arabian oil.

(Click to enlarge)

Rumors also indicate we may well see a drop in Saudi production with the latest numbers from the impending IEA, OPEC monthly reports in the coming days. This wouldn’t be too much of a shock given an expected seasonal drop as summer power generation demand wanes, although combined with an expected drop in Iraqi flows due to a pipeline issue could spur some bullish headlines.

By Matt Smith

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