Crude Charging Higher Ahead Of Big Week
By Matt Smith
Thirty-three years after REM released their debut album, and the crude complex today is being driven by murmurs again. As the producer meeting in Doha approaches (but not fast enough…), here are seven things to consider in the oil market today:
1) Economic data flow was kicked off overnight by a weaker print for Chinese inflation in March. Inflation dropped on the prior month by -0.4 percent, limiting the year-on-year rise to 2.3 percent, below consensus of +2.5 percent. Nonetheless,food prices increased by 7.6 percent, driven by rising vegetable and pork costs.
2) As for Chinese producer prices, despite being negative on a year-over-year basis since 2012, the first month-on-month increase was seen since 2013. Year-on-year prices are showing easing deflation, down less than expected at -4.3 percent.
3) Economic data is thin on the ground elsewhere today. Fortunately, us energy folk get the EIA’s monthly drilling productivity report today, assessing the health of oil and gas production at key U.S. shale plays. We then get the triumvirate of key monthly oil reports, with the EIA’s short term energy outlook tomorrow, OPEC’s oil market report out on Wednesday, with the IEA the caboose on Thursday. Doha lurks in the distance on Sunday.4) Despite the worldwide rig count reaching its lowest level since September 1999 at 1,551, rigs in Saudi Arabia, Kuwait and UAE have been on the rise.
While the worldwide rig count has dropped 60 percent in little over a year, the three countries on the Arabian Peninsula have seen rigs more than double in recent years as they attempt to boost production capacity:
5) According to the International Group of LNG importers, global supplies of LNG are set to be boosted by 14 percent this year as new capacity comes online, predominantly from Australia.
Hence, as capacity continues to outpace demand – and is set to through the duration of the decade – LNG prices are set to remain under pressure. Singapore Spot LNG prices have slumped to $4/MMBtu, falling from $14/MMBtu back in September 2014, when price assessments started.
6) The latest CFTC data show that hedge funds are once again increasing short positions in WTI crude oil. Shorts increased, while long positions were little changed; this meant that the net long position held by speculators dropped for a second consecutive week.
7) We have discussed recently how the reversal in crude prices from January lows has been in tandem with a return to dollar weakness and a risk-on appetite. Hence, as equities start the week moving higher as quarterly earnings season is kicked off after-hours, the yen has rallied to its highest level versus the dollar since late 2014, while the euro is pushing on above 1.14 for the first time since last fall.
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Crude is pushing higher once again, while emerging market currencies are on a tear. As the chart below illustrates, crude has rallied over 40 percent since late January, while the Ruble has appreciated by over 20 percent.
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