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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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Stronger Dollar Weighs On Commodities, Oil

One hundred-and-twelve years after the first successful gasoline-powered airplane flight by the Wright Brothers, and the crude complex is trying to gain ground after yesterday’s liftoff from the Fed.

The U.S. dollar has some wind beneath its wings today, seeing some momentum in response to yesterday’s U.S. interest rate hike. This in turn is providing headwinds for much of commodityland™, although the crude complex is hanging tough…for now.

In terms of economic data flow, the Japanese trade deficit came in at 380 billion yen in November, down nearly 60 percent on the prior year as a drop in imports outpaced falling exports. Imports dropped by a more-than-expected -10.2 percent YoY in November, while exports fell -3.3 percent YoY – led by a 8 percent drop in exports to China.

Across to Europe, and German sentiment data came in below par across the board, while retail sales in Blighty returned to form after last month’s blip. Both retail sales (-13.1 percent YoY) and the unemployment rate (5.8 percent) from Russia was worse than expected, while jobless claims in the US were better than both consensus and last week’s print at 271,000. Regional Philly Fed manufacturing data fell in line with recent manufacturing and industrial production data, showing weakness.

Related: Tesla’s License Plate Mystery Debunked

Onto a couple of tidbits out of Russia, and President Putin said in his annual news conference that an oil price of $50 per barrel in Russia’s 2016 budget is a ‘very optimistic valuation‘ at this juncture, while Russia’s Energy Minister Alexander Novak told reporters on Thursday that Russia is ready to meet for talks with OPEC, and has been awaiting an invitation. (No comment).

From one BRIC to another, and China is having to weigh up the consequences of the lifting of the U.S. oil export ban. While the prospect of U.S. exports could put further downward pressure on global oil benchmarks – meaning even cheaper oil for China – this would be at odds with efforts by Chinese leaders to reduce energy consumption.

Lower energy prices will encourage higher consumption, something we are already seeing from China with gasoline demand up over 10 percent through the first ten months of this year. Accordingly, China is suspending fuel price adjustments (i.e., not lowering fuel prices as oil prices drop) as it tries to curb demand and cut pollution. Gasoline prices remain considerably higher than those seen in the U.S. (21 yuan per gallon = $3.25). Related: 5 Reasons Why Coal Is Being Killed Off

In terms of waterborne crude imports, they have dropped sequentially through the second half of the year, although our ClipperData point to strong imports so far in December. The drop-off is in part due to increasing pipeline flows from Russia, while subdued diesel demand is limiting the need for further crude imports. Nonetheless, waterborne imports are on target to be around 9 percent higher this year than in 2014. Related: The Oil Company Where All Employees Still Get Six-Figure Bonuses

By Matt Smith

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