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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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Weak Data, Strong Dollar Pressure Crude Lower

Despite it being James Brown’s birthday (he would have been 83 today), and despite yesterday’s sell-off, oil prices are struggling to get up, get on up. Here are five things to consider on this third day of the fifth month:

1) The Caixin PMI, the alternative measure to the official PMI manufacturing print released over the weekend, has shown a similar trend – that of worsening conditions. The Chief Economist for Caixin, Dr. He Fan, said that ‘the economy lacks a solid foundation for recovery, and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn’.

In contrast to the official PMI, this measure shows the ongoing contraction in the manufacturing sector – as it has done since February of last year. In contrast, the official PMI has shown the sector expanding for the last two months, after contracting in the seven months prior to that.

2) James Brown shares a birthday with Niccolò Machiavelli, who was born some 547 years ago, and there is something distinctly duplicitous about the Chinese economy; it continues to show wile and cunning in the face of apparent adversity. This duplicity can be seen in industrial production data, and in the petroleum data also (all paths lead back to energy, after all). Related: Physical Gold Demand At A 6 Year Low But Prices Soar

After reaching a six-year low for industrial production in January, March saw a strong rebound to 6.8 percent YoY. All the while, auto sales continue to drive on Chinese gasoline demand, led by SUV sales (hark, +46 percent YoY in March). Countering this, diesel demand has been contracting for the last two years. All the while, our ClipperData show that Chinese waterborne crude imports for April are at their highest since at least 2013.

3) On the economic data front elsewhere, we have seen Australia surprisingly cutting interest rates to be more accommodative, as inflation reaches a record low in the resource-rich nation. Manufacturing in Blighty (the UK) surprisingly contracted last month, while Brazilian industrial production was down 11.4 percent in March versus the year prior, even worse than expected.

4) In similar fashion to China, the U.S. is also seeing strong gasoline demand. In fact, February’s demand rose at the quickest annual pace in almost 40 years. At 9.2 million barrels per day, it was up 556,000 bpd on the prior year, the biggest increase since May 1978 – spurred on by cheap prices and a growing economy (mo’ jobs). Related: What Do Brent Spreads Know That We Don’t

(Click to enlarge)

5) Yet one more impact from low oil prices, and commodities generally, can be seen regarding the sub-Saharan African economy, which is set to grow at its slowest pace in 16 years. Economic growth is projected to be at 3 percent this year, lower than the global average of 3.2 percent and down from 3.4 percent last year, as lower Chinese demand for Africa’s minerals, in combination with lower revenues for oil exporters, is putting the brakes on expansion in the region. Related: Why China Is Really Dictating the Oil Supply Glut

Historically, Nigeria is Africa’s largest oil exporter. As it battles for market share, while also battling against sabotage, Nigeria has seen exports drop 6 percent lower thus far this year compared to 2015 amid falling production. It awaits the return of its Forcados blend for export in June, after being taken offline due to pipeline bombings.

By Matt Smith

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  • kamakiri on May 03 2016 said:
    DXY drops quickly from 95 to under 92.50 and a little bounce up is a 'stronger dollar'?

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