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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 Prices Continue To Tumble As Supply Glut Fears Return

Sixty-one years after Tennessee Williams’ play ‘Cat on a Hot Tin Roof’ debuted on Broadway, and the crude complex is exhibiting traits of the aforementioned feline: looking nervous, skittish, and jumpy. After a ginormous build from yesterday’s weekly inventory report, crude prices were a wop-bop-a-loo-bop a-lop-bam-walloped…and are still having trouble getting up off the canvas today. Hark, here are seven things to consider on this 24th day of March:

1) A quick tour of economic releases shows weak German import data and softer sentiment data from both Germany and France, while tales of retail sales in the UK have once again shown strength.

Onto the U.S., and jobless claims came in better than expected at 265,000, while notoriously volatile durable goods data fell by 2.8 percent in February, with a downward revision to January to boot. Global equity markets are getting crushed like a grape. Related: Brussel’s Terror Attack Drives Europe Further Into Terrorism Rabbit Hole

2) Despite a snowstorm barreling through Colorado, heading east toward the upper Midwest, the natural gas storage report today is set to deliver the first injection of the year. With storage levels already nigh on 50 percent above the 5-year average, 67 percent above last year’s level, an injection of 22 Bcf will put us at over 2.5 Tcf. Ample, to say the least.

3) I absolutely love the chart below, as it so simply illustrates the impact of non-commercial short positions (aka bearish speculative positions) on prices. As short positions (yellow) have been unwound in April last year, in August last year, and then in February of this year, prices (red) have correspondingly rallied. All the while, long positions (blue) have not done a great deal.

Short positions have been slashed in the last month, encouraging oil prices to rally a euphoric 50 percent. Short-covering appears to have run its course – and so might have the recent rebound.

(Click to enlarge)

4) All the while, through the rally of the last month or so, the bout of short-covering was tag-teamed by dollar weakness. Hence, as crude prices continue to fall from a three-month high this week, it is no surprise to see the U.S. dollar strengthening for a fifth consecutive day – its longest streak in two months. As equity markets turn lower amid rising interest rate hike expectations, it’s almost like all markets are interlinked! Related: Record Loss For Petrobras As Political And Economic Crisis Worsen

5) The EIA reports that Nigerian imports to the U.S. last week reached their highest weekly level since mid-2013. Our ClipperData shows that imports were even larger than the EIA’s estimate, coming in at 588,420 bpd. This is the biggest weekly volume since 2012 (hark, below).

Of these imports, 66 percent went to the East Coast (PADD1) and Monroe’s Trainer refinery, PES’ Philadelphia refinery and to Sunoco’s Marcus Hook Terminal. The remaining 34 percent of volume went to the Gulf Coast (PADD3), and PAA’s St. James terminal.

(Click to enlarge)

6) Yesterday we discussed how the commodity collapse of the last year or so has crushed the Brazilian economy. The chart below illustrates how some of its fall from grace has been its own fault, as it has invested far too little in its economy.

Brazil’s economy has been hobbled by its fiscal priorities, while its purchasing power continues to shrink. Its per capita income has now dropped to 27 percent of that seen in the U.S., down from 30 percent in 2010, and 38 percent in 1980. Related: Oil Prices Fall Fast On Huge Inventory Build

While China’s public and private investment is equal to 43 percent of its GDP, Brazil’s is a mere 17 percent – less than that of Chile, Colombia and Mexico. Considerable underinvestment is exemplified by its underdeveloped infrastructure – China has thirty-two times as many paved roads per square mile, and three times as many railroads. While China’s exports equal 26 percent of its GDP, Brazil’s are just 13 percent. And to add insult to injury, 50 percent of Brazil’s exports go to China.

(Click to enlarge)

7) Finally, 27 years ago today, the Exxon Valdez ran aground in Alaska, spilling 240,000 barrels of oil.

By Matt Smith

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Leave a comment
  • kamakiri on March 24 2016 said:
    "Short-covering appears to have run its course – and so might have the recent rebound."

    Far from it. Speculator shorts are only about *half* covered from the May '15 and Oct '15 price peak levels.

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