After last week’s EIA inventory report yielded a lower refining/higher imports-sponsored build to crude stocks, last night’s 7.3 million barrel drop from the API report is indicating we should see a fairly hefty draw from the EIA this morning. After last night’s last-minute sell-off in US equities, risk appetite has picked itself up again and has dusted itself off, and is looking at another run higher today. The crude complex is appearing similarly optimistic at first blush.
Chinese equities finished lower again last night after whip-sawing betwixt green and red over 40 times, while the latest attempt to stabilize the situation has come courtesy of the People’s Bank of China, as it injected $22 billion into the financial system to try and shore things up.
The Rbob gasoline contract is charging lower today, despite the expectation of a ~1 million barrel draw from today’s inventory report. Good news out of the Whiting refinery is helping to put downward pressure on gasoline, while rumors and murmurs of refinery outages elsewhere are unable to buck this bearish trend. Whiting has restarted its crude unit after leaks caused the closure of the 240,000 bpd unit back on August 8th. While there will only be a gradual ramp up of fuel production from Whiting, its return is still well ahead of expectations, which was initially pegged at late September.
As crude prices revisit the lows seen earlier in the year, we are seeing corresponding weakness coming through in a plethora of currencies. As the below image illustrates, those currencies which are heavily dependent upon oil exports are at the mercy of the moves in black gold, Texas tea. Hence, there’s a whole lot of clobberin’ goin’ on:
Focus remains on China, and particularly so for the crude complex, given the relationship between deteriorating sentiment towards the Chinese economy and a corresponding drop in oil prices. The below graphic highlights what a true behemoth China is in terms of commodity consumption. As this WSJ article highlights, China now buys about an eighth of the world’s oil, a quarter of its gold, a third of its cotton, and about half of all major base metals:
Warren Buffett is perhaps the greatest investor of all time, so when the billionaire issues a warning, it pays to listen.
While China is constantly on our radar, geopolitical tension seems to be persistently absent. If you’re looking for a black swan in the current crude market to boost prices, look no further than signs of social unrest in certain petro-states. This headline from the NYT sums it all up rather well: ‘As prices descend from Venezuela to Iraq to Russia, oil price drops raise fears of unrest‘.
Meanwhile, cracks continue to appear in the oil and gas sector, giving way to consolidation; the latest is Schlumberger (the world’s largest oil services provider) agreeing to buy oil equipment company Cameron for nearly $15bln.
Finally, if in the need of some light relief, here are the top ten jokes from the Edinburgh fringe festival, while a lady from Missouri saw Donald Trump’s face….in a tub of butter.
By Matt Smith