Two hundred and fifty-eight years after mustard was first advertised in the U.S., and the crude complex is looking hot to trot once more.
U.S. equity, bond and commodity markets are closed today in observation of Presidents Day, but electronic trading is open for black gold, Texas tea – and things are looking up. After last week’s torrid equity sell-off, Asian markets have finished mostly higher overnight. The return of risk appetite / hopes of further stimulus is combining with an ongoing bout of short-covering to propel crude prices higher once more. On this mostly market-closed Monday, let’s take a look at five things to consider:
• Overnight economic data was weak. Chinese equities opened for the first time since the Lunar New Year, and were welcomed in by some considerably disappointing trade data. Exports fell by 11.2 percent year-on-year (versus -1.9 percent expected) while imports dropped 18.8 percent YoY (versus -0.8 percent expected). This means China has now reached a new record trade surplus at $63.29 billion. Related: The Hidden Agenda Behind Saudi Arabia’s Market Share Strategy
Chinese trade surplus reaches a record (source: investing.com)
• Meanwhile, preliminary GDP data show the Japanese economy contracted in Q4 for the fourth time in seven quarters. It shrank by 1.4 percent, worse than the 1.2 percent drop expected, as both consumer spending and exports declined. Bad news also came in the form of industrial production, which fell 1.7 percent versus an expected 1.3 percent drop for December. Related: A Market Collapse Is On The Horizon
• On Friday we discussed three reasons why OPEC was highly unlikely to cut production. This has been affirmed by developments today; after we pointed out that our ClipperData showed January loadings up 75 percent YoY for Iran, news comes that it is sending its first cargo into Europe since 2012. And while we continue to see rising production from Iraq, we have also heard from Nigeria’s Federal Government that it is committed to boosting production this year to 2.5 million barrels per day, from a current level of ~2.3 mn bpd.
• The Chinese General Administration of Customs in Beijing affirmed something which we have been highlighting from our ClipperData: that Chinese crude oil imports dropped dramatically in January. Customs data showed imports dropped 20 percent on December’s volume, pointing to lesser refining demand for the drop. Refining operating rates dropped to 77 percent in December from 79 percent in the month prior.
• Finally, the latest CFTC data show that speculative long positions in WTI last week reached their highest level since June. Short positions dropped by 2.1 percent: Related: Why Today’s Oil Bust Pales In Comparison To The 80’s
By Matt Smith
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