Crude

The Islamic State's play for Libyan oil could lead the warring governments to speed up a power-sharing agreement to end the civil war and unite them in the face of an even greater threat. Or, they could lose all to ISIS, which would allow the terrorist group to seize control of an OPEC country.

One of our favorite hypocritical CEOs spoke this morning to try and explain why his rail freight transportation company's stock is plunging. 11 months ago Michael Ward was adamant on CNBC that he has "not seen any changes," suggesting everything's fine down to $30-35 oil and "expected no impact on crude shipments." Today, he exclaims, the volume drop can be seen as "freight recession," warning that "there is pressure on markets not seen outside of a recession." He is right, of course, as we noted previously, the weakness in rails is entirely recessionary and is no longer limited to industrials or coal.

The rift between Saudi Arabia and Iran has quickly ballooned into the worst conflict in decades between the two countries. The effect from the brewing conflict on oil is murky, but for now it is not having a bullish impact. But what if the current “Cold War” between Saudi Arabia and Iran turned hot?

"To bottom on a Shiller PE of 7x would see the S&P falling to around 550. I will repeat that: If I am right, the S&P would fall to 550, a 75% decline from the recent 2100 peak."

Confirming API data overnight, DOE reports that while total inventories of crude rose less than expected (+234k vs +2.1mm exp.) Gasoline and Distillates saw a massive build once again. Gasoline invenrtories rose 8.44mm barrels (following last week's 10.6mm record build) is the biggest 2-week inventory build in history. Crude has crashed back from overenight "China is buying oil" demand hopes.

"Crude oil prices, finally, have stabilised, and we shall go our far upon a limb here this morning suggesting very strongly that when nearby February WTI traded to $29.93 at its low yesterday amidst a great deal of very vocal consternation on the national business television channels that crude had “TRADED BELOW $30 PER BARRELL” that that was what we in the past had referred to as the “obscene number” and may well have been the low."

• China trade surprise brings relief (Reuters)
• Obama knocks Trump, voices optimism (Reuters)
• Republican Candidates Criticize Obama’s State of the Union Address (WSJ)
• Republicans and Democrats Agree: We Hate Wall Street (WSJ)
• Oil rises for first time in eight sessions on China, U.S. stocks draw (Reuters)
• U.S. Exports First Freely Traded Oil in 40 Years (WSJ)
• China Imports Record Crude as Price Crash Accelerates Buying (BBG)

After two months of sharp currency devaluation, the market was carefully watching last night's China trade data to see if the Yuan debasement had led to a positive trade outcome to the world's second largest economy, and as reported last night, it was not disappointed when China reported a December trade surplus of $60.09 billion from $54.1 billion in November, as a result of exports beating expectations and rising 2.3%, the first increase since June, while imports declined by just 4%, the smallest drop since 2014 despite China importing a record amount of oil, or 33.2 million tons, in December.

Russia has just taken significant steps that will break the present Wall Street oil price monopoly, at least for a huge part of the world oil market. The move is part of a longer-term strategy of decoupling Russia’s economy and especially its very significant export of oil, from the US dollar, today the Achilles Heel of the Russian economy.

As the towering forces that are prevailing against failing global economic architecture and the pit of debt beneath that structure, as laid out below, it is clear that the 'Epocalypse' - encompassing the roots "economic, epoch, collapse" and "apocalypse" - is here, and it is everywhere. The Great Collapse has already begun. What follows are the megatrends that will increasingly gang up in the first part of 2016 to stomp the deeply flawed global economy down into its own hole of debt.

Tank cars, once feverishly ordered during the US shale boom, are sitting on sidings. Lessors are obtaining car rents 20-30 per cent below early 2015 — “if you’re lucky enough to keep your car in service”, said James Husband of RailSolutions, a consultancy.

"Overall, the county economies recovered on all four indicators by 2015 still represent only 7 percent of all county economies. In contrast, almost 16 percent of county economies had not recovered on any indicator by 2015."

With the seasonally drawdown-prone December completed, we begin seasonally build-prone January with expectations for a 2mm barrel build. However, according to API, both total and Cushing inventory levels tumbled (-3.9mm and 300k respectively). Great news - so why is crude tumbling? Simple - massive builds in end-products again with Gasoline up a massive 7mm barrels and Distillates up 3.6mm barrels. Having ramped off sub-$30 levels aftwr NYMEX closed, and lifted by the Iran-US news, WTI is sliding back rapidly.