Forty-two years to the day after the filming of “Jaws” began (in Martha’s Vineyard, Massachusetts), and the bears are smelling blood in the water for a pullback (perhaps driven by this news from OPEC?). With certain countries closed for a bank holiday today (May day! May day!), here are five things to consider in the oil market:
1) With a new month on deck, we get a new onslaught of economic data, and specifically, global manufacturing data. China kicked things off over the weekend, with a below-consensus print on its official PMI manufacturing number, showing marginal expansion at 50.1 (down from 50.2 last month and below the expectation of 50.4). Related: Oil Rallies On As Traders Ignore Red Flags
Elsewhere, Japan’s manufacturing PMI was better than expected, but still showed contraction, while the Eurozone PMI was above consensus, growing, and also above last month. Both France and Germany were below par, but were offset by strength from Spain and Italy. Brazil’s manufacturing print was a hugely huge miss, now down to a new multi-year low, while the U.S. PMI has showed just a minor miss, but holding in expansion at 50.8.
2) The latest CFTC data show net-longs held by speculators such as hedge funds have increased to their highest level in a year, as short positions have dropped to a 10-month low. Once again, this has been driven by a ‘less bearish’ stance, as opposed to ‘mo’ bullish’ one, with both long and short positions shrinking. Shorts shrank by 6.9 percent, while longs slipped 0.5 percent.
(Click to enlarge) Related: Why Canada’s Oil Industry May Never Be the Same
3) We can see in our ClipperData that Argentina is seeing crude oil loadings ramping up, encouraged by a newly-announced government subsidy. As long as international oil prices remain below $47.50/bbl, the government is paying $7.50/bbl to oil exporters. With Argentina’s economy expected to shrink this year, this presents an opportunity to for the nation’s producers to ship out excess crude:
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Argentina crude oil loadings (source: ClipperData) Related: Massive Oil Theft By Pirates Costs Nigeria $1.5 Billion Every Month
4) Currency movements continue to push and prod crude prices around. While the euro rallies above 1.15 for the first time since last August, it is joined in strength by the yen. Hence, the U.S. dollar index is weakening again – not surprisingly to the lowest since last August. The weaker dollar continues to backstop crude prices from a more severe sell-off.
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5) Finally, Halliburton and Baker Hughes has announced that it is calling off its merger – which was valued at one point at ~$35 billion. Opposition from regulators has been to blame for the breakdown. Halliburton has said that it will pay a $3.5 billion breakup fee to Baker Hughes as part of the conditions of the merger agreement.
By Matt Smith
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