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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 Touches $32 Handle As Panic Takes Hold Of Chinese Markets

It is Dustin Diamond’s 39th birthday today, and accordingly the crude complex is screeching lower – fast approaching the roaring $20s. Blink and you would have missed last night’s Chinese equity trading session, as another 7 percent of losses triggered circuit breakers for the second time this year month week, meaning trading was halted for the rest of the day. The brief 15-minute session marks the shortest trading session in the exchange’s 25-year history.

The Chinese yuan also got clobbered, down as much as 0.9 percent in the freely-traded offshore market, after the People’s Bank of China lowered their daily fixing of the currency by 0.51 percent. Although emerging market currencies from the rand to the ruble have been crushed, strength in the euro is meaning the U.S. dollar index is shirking its role of safe haven for now, and heading lower. (Lest we forget, the euro accounts for ~58 percent of the U.S. dollar index). Nonetheless, this is having little impact on the falling knife that is the crude complex today, as it is engulfed by oversupply woes and Chinese concerns.

In terms of economic data flow, Eurozone retail sales were negative for November, (-0.3% percent vs. +0.2 percent expected), dragging down year-on-year growth to +1.4 percent. Looking for a silver lining (you have to on days like this), we can find one with Eurozone unemployment, which dropped to 10.5 percent, the lowest level since early 2012:

Eurozone unemployment rate (source: investing.com)

Brazil’s woes continue, with industrial production falling 12.4 percent year-on-year for November, the worst drop since mid-2009. Meanwhile, here in the U.S., weekly jobless claims came in slightly worse than the consensus of 275k at 277k. Related: Maduro Sees His Power Crumble, Will Venezuela’s Oil Be Privatized?

Relations between Saudi Arabia and Iran continue to deteriorate, with Iran accusing Saudi today of launching airstrikes on their embassy in Yemen. Meanwhile, the 12-month forward for the Saudi riyal is close to a record low as economic worries build. These concerns have also manifested themselves in credit default swaps for Saudi debt, which have risen to multi-year highs amid the worst non oil sector PMI data release on record:

Sauidi Arabia non oil sector PMI (source: tradingeconomics.com)

Shifting gears (pun wholeheartedly intended), the charts below highlight how demand is falling for heavy-duty trucks, while inventories are building. Orders plunged nearly 37 percent in December on year-ago levels, as less freight is expected to be hauled than expected due to a slowing U.S. economy. Related: 10 Key Energy Trends To Watch For In 2016

The beginning-of-year bloodbath across the crude complex is ensuring that we are set to experience sub-$2 a gallon gasoline for a little while longer. While much has been made over the last year about where last year’s $115 billion of savings at the pump have been spent – paying down credit cards, replenishing savings, etc – the latest analysis points to nearly 80 percent of it being spent at restaurants, bars, and convenience stores. Related: BP’s CEO Finally Sees Oil Prices Bottoming Out

Based on 57 million credit and debit card purchases, most of the savings have been seen going to restaurants (18 percent), then groceries, then entertainment:

Finally, despite Saudi Arabia cutting subsidies on gasoline last week in its latest budget – which essentially means a 50 percent increase to retail prices – they still remain the second lowest in the world, behind Venezuela:

 

By Matt Smith

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