Thirty-eight years after ‘The Buddy Holly Story’ had its world premiere, and everyday, it’s a getting closer ($50 crude that is). After a deluge of economic data overnight, and ahead of the weekly EIA inventory report, crude is edging higher, but traders were slightly disappointed by the EIA reported crude barrel build of 1.3 million barrels. Hark, here are five things to consider in the oil market today.
1) First up, Japan – the world’s third largest economy – saw preliminary economic growth in the first quarter come in much, much better than expected, at +1.7 percent YoY (versus an expected +0.2 percent). This is a big improvement on the prior quarter’s drop of -1.7 percent YoY. Perversely, this has not been accepted too gladly, as it indicates that a tentative economic recovery is underway – blunting the potential of stimulus going forward.
2) Across to Europe, and in contrast to rising U.S. inflation yesterday, the Eurozone is heading the other direction. Inflation year-on-year dropped -0.2 percent in April, after battling to clamber back to zero in March. Related: Oil Price Spike Is Not As Far Away As Many Think
3) The Conference Board of Canada has estimated that the Fort McMurray wildfires of recent weeks have caused the loss of 16.8 million barrels of Canadian oil output across 14 days (or 1.2 million barrels per day). The cost of this loss to the country’s oil industry is pegged at $760 million. New developments over the last 24 hours has seen wildfires change direction again, and oil facilities are being evacuated once more. This turn of events is set to further prolong the drop in oil output from the region.
4) This article today addresses perhaps the most important story in the crude oil market so far this year, yet not nearly enough is being said about it. Crude imports into China this year have been arriving at a torrid pace; we saw waterborne imports reach a record high in our ClipperData last month.
The demand side of the equation doesn’t seem to be growing at nearly the same breakneck speed – diesel demand has contracted in the last two years, down 3.7 percent in 2015 and 1.5 percent in 2014. While rampant auto sales of utility vehicles continues to support gasoline demand, it is not nearly high enough to absorb excess barrels – even if combined with falling Chinese domestic oil production. Related: Can Big Oil Survive At Today’s Prices?
The piece concludes that ~870,000 bpd of crude has not been processed through refineries so far this year, and is most likely making its way into commercial and strategic storage. If this is the case, it means that over 100 million barrels has made its way into storage through the first third of the year – something that is affirmed by the implied storage build in our ClipperData. This is a pace that cannot logistically be kept up.
5) As Saudi Arabia continues to push oil out onto the global market, JODI data show its oil stockpiles fell for a fifth consecutive month in March to an 18-month low. They dropped to 297.7 million barrels from 305.6 million in the prior month, after reaching a record last October of 329.4 million barrels.
Our ClipperData affirms stronger exports; coinciding with March’s draw on stocks, we saw crude loadings some 8 percent higher than year-ago levels – which in itself was the highest month for imports last year. Looking ahead, as Saudi looks to increase demand ahead of summer power generation needs, it is set to ramp up domestic production too for exportation as it continues to battle for global market share. Related: Brazil’s New Foreign Minister Suspected Of Dubious Dealings With Chevron
By Matt Smith
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