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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 Jump As Dollar Hits 5-Month Lows

To mark St. Patrick’s Day, the crude bulls have the luck of the Irish, as prices push on the green. As hopes of a production freeze meeting next month rise once more, so does the price of black gold, Texas tea. Here are six things to consider on this 17th day of March:

1) In terms of overnight economic data, things were kicked off by Japan, with its trade balance rising to a surplus last month, driven by a much larger drop in imports (-14.2 percent) compared to exports (-4.0 percent). Across to Europe, and Eurozone inflation once again dropped back into deflationary territory, down 0.2 percent YoY for February (think: lower oil prices). Stripping out food and energy, core inflation came in at +0.8 percent, higher than the +0.7 percent expectation.

(Click to enlarge)

Eurozone inflation, % YoY (source: investing.com)

2) In terms of U.S. economic data, weekly jobless claims have been strong again, coming in at 265.000, versus 268.000 expected. The Philly Fed manufacturing index has followed hot on the heels of the NY Empire manufacturing print by showing regional strength, coming in at +12.4 – the highest level since last June. Related: OPEC-Russia Meeting Set For April With Or Without Iran

3) Yesterday we discussed the potential for hawkish Fed talk to send crude prices lower as it provided a boost to the dollar. Well, the absolute opposite happened; talk of only two more U.S. rate hikes this year sent the U.S. dollar charging lower, propelling crude prices higher.

While much emphasis has been put on production freeze talks and short-covering for the recent reversal in crude prices, it needs to be acknowledged that the U.S. dollar is at a 5-month low, as risk appetite has flipped, sending equities, commodities and emerging market currencies all charging higher.

So while producer jawboning has played its part in igniting a crude oil short-squeeze, central banks are as much responsible for the recent rally. Negative rates, stimulus measures and ongoing accommodative monetary policy have boosted market sentiment alike:

(Click to enlarge)

4) After yesterday’s weekly crude data, today’s attention switches to natural gas, and a likely minor withdrawal from the weekly storage report. Consensus is for a single-digit draw, compared to -88 Bcf last year and -81 Bcf for the five-year average. This would leave storage at ~2,475 Bcf, some 48 percent above the 5-year average. Related: ‘’Iran’s Return To The Oil Markets Less Damaging Than Expected’’

Nonetheless, as this piece from the EIA today illustrates, natural gas storage capacity has edged lower in the last year, down to 4,658 Bcf in November 2015, as high production levels and low natural gas prices disincentivize the need to stockpile. Should we have a mild summer to match the mild winter just past, we are going to see ourselves once again propelled above 4 Tcf as we move into fall.

(Click to enlarge)

(Click to enlarge)

5) Last week we took a look at refinery inputs, and the below chart has been refreshed as it highlights the ongoing out-performance of refinery runs this year. This indicates that the peak of refinery maintenance season seems to in the rear-view mirror, as opposed to just ahead: Related: Oil Won’t Stage A Serious Rebound Until This Happens

This piece on Bloomberg highlights how U.S. refinery utilization has been running at just over 89 percent so far this month, and at just over 88.5 percent year-to-date. This is 3-3.5 percent higher than the five-year average, and means some extra ~40 million barrels have been processed. Nonetheless, inventories continue to build for crude, as both domestic production and imports are elevated, while products continue to build due to strong refining runs (and lower demand for distillates due to a mild winter).

(Click to enlarge)

6) Finally, Saudi Aramco and Shell are splitting up their U.S. refinery assets and going their separate ways after 18 years. Shell will assumes control of nine fuel terminals and two Louisiana refineries, while Saudi Aramco get to keep the Port Arthur refinery – the largest in the U.S. – as well as 26 terminals and fuel licence agreements for the Midwest and Southeast. The move appears to have been spurred on by Saudi Aramco’s decision to do an initial public offering. @dmarino4 summed up the announcement on Twitter, saying ‘Looks like Aramco gets the mansion, Shell the vacation cottages, and they split the kids…’.

By Matt Smith

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