It is Pharrell's 43rd birthday, and the crude complex appears happy to edge lower once again as production freeze hopes wane. Here are six things to consider on this fifth day of the fourth month:
1) On the economic data front, we have had PMI services data, hot on the heels of the recent deluge of PMI manufacturing prints. The Eurozone Services PMI came in shy of consensus, due to under-performance from Germany, France and Italy - although Spain was better than expected. Retail sales for the region painted a more positive picture, up 0.2 percent for February, up 2.4 percent YoY.
Brazilian services rebounded from multi-year lows, but still show a rapid pace of contraction from the sector. Russian inflation ticked lower to 7.3 percent YoY, while the U.S. services PMI came in better than expected, at a three-month high.
2) We get the weekly API report out later this afternoon, and although our ClipperData showed strong imports last week from South and Central America (hark, 10.4mn barrels) as well as five VLCCs arriving in the Gulf of Mexico from the Arab Gulf (6 million barrels from Saudi, 2 million barrels from Kuwait, and 2 million barrels of Basrah Light), some disruptions to imports due to fog look set to scupper expectations of a solid build to crude stocks this week. Related: Advantage U.S. In The Global Petroleum Showdown?
3) Lots of talk continues to circulate around Saudi / Russia / Iranian intentions relating to the production freeze. As we mentioned last week, flows from Iran have ramped up into India this month, surpassing those of China - the usual top destination for Iranian exports.
According to our ClipperData, the combined total of India, China, South Korea and Japan accounts for over 80 percent of Iranian oil exports delivered last month, while flows also made their way to more unusual destinations such as Tanzania and the Philippines. Europe also saw some destinations reinstated, with flows heading to Spain and France.
4) As for Saudi Arabia, it has cut its official selling price (OSP) for Arab Light into Asia by $0.10/barrel for next month, discounting its crude by $0.85/barrel to the Oman/Dubai average. We continue to see firm demand for crude from Asia, led by India and China - although our supply / demand balance for China points to an incredible pace of stockpiling in the last two months - hence this price tweak by Saudi appears competitive in nature, with an ongoing market share battle at the forefront of this move.
5) While on the topic of India, its economy continues to exhibit signs of strength, with the Reserve Bank of India earlier today cutting its main interest rate to 6.5 percent. Although the cut was expected, it signals that Asia's third-largest economy is winning its fight against inflation. Retail inflation is at a 4-month low at 5.2 percent, while falling oil prices have helped wholesale prices drop for 16 straight months.
6) Finally, Japan's latest 10-year Japanese Government Bond (JGB) auction was set at a yield of -0.069 percent, a more negative rate than the last auction of -0.024 percent. This means you get the privilege of paying 6,900 Yen each year to hold a JGB worth 1 million yen. What odd times we live in. Related: Can A Divided OPEC Agree On Anything In Doha?
JGB auction rate (source: investing.com)
By Matt Smith
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Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01 More