Crude

Following last week's huge build reported by DOE, crude inventories reported by API tonight dropped 3.6 million barrels (drastically different from the 2.3mm build expected). WTI is rallying on the news, despite a 1.5 million barrel build at Cushing (up notably from last week's 847k) - the 7th weekly build in a row.

Just as we warned, since the US export ban 'lift' loomed, so WTI prices have shifted notably, having today converged to Brent's price for first time since January. It may have a lot further to fall as some analysts suggest the lifting of the export ban "is going to end up ultimately being bearish everything."

"... we fear that prices are soon to head lower… and perhaps materially so. Thus, it is not only wise, it is reasonable, that we shall increase the size of our derivatives positions to make quite certain that our net long position is covered completely and that we are indeed as “net neutral” as we can possibly be.... ... we do find ourselves quietly… very, very quietly… turning away from being manifestly and overtly bearish of crude to being bullish as the term structures continue to shift."

• Battered oil wins respite, lifts stocks (Reuters)
• Oil Halts Decline as Emerging Market Stocks Climb on China (BBG)
• Bonds Set to Beat Stocks Globally in 2015 After China Falters (BBG)
• SpaceX Falcon rocket nails safe landing in pivotal space feat (Reuters)
• China Leaders Flag More Stimulus After Top Economic Meeting (BBG)
• SEC to Retrench Case Against SAC’s Steven A. Cohen (WSJ)

It has been a seesaw session with U.S. stock index futures following their dramatic buying burst in the last half hour of market trading yesterday by first rising, then falling, then rising again alongside European equities both driven almost tick for tick with even the smallest move in the carry trade of choice, the USDJPY, even as Asian shares trade near intraday highs after China’s leaders signaled they will take further steps to support growth.

Oil's hope for a bottom anytime soon appears to stand Snow White's chance in hell of coming true. Seventy-eight years after Walt Disney released the first full-length animated feature, and seven factors in today’s crude complex are dwarfing crude prices.

OPEC blowback continues to ripple around the world. With Russia's Ruble pushing back towards record lows against the USD, and Kazakhstan's Tenge having tumbled to record lows, the writing was on the wall for Azerbaijan. As Bloomberg reports, the third-biggest oil producer in the former Soviet Union moved to a free float on Monday and the manat crashed almost 50% instantly to its weakest on record with the second devaluation this year.

While contracts have rolled, we thought it worth noting that January WTI Crude just flushed to a $33 handle for the first time this cycle. Feb crude (the current front-month) is down almost 2% to its series lows around $35.35...

While many still cling to the belief that U.S. shale and tight oil plays are commercial even at current low oil prices but data on the Permian basin and Bakken plays simply does not support this hope. In fact, less than 2 percent of Permian basin tight oil wells are commercial at $30 per barrel oil prices.

In a weekend of very little macro newsflow facilitated by the release of the latest Star Wars sequel, the biggest political and economic event was the Spanish general election which confirmed the end of the PP-PSOE political duopoly at national level.  As a result, there was some early underperformance in SPGBs and initial equity weakness across European stocks, which however was promptly offset and at last check the Stoxx 600 was up 0.4% to 363, with US equity futures up nearly 1% after Friday's oversold drubbing. In other key news, the commodity slide continues with Brent Oil dropping to a fresh 11-year low as futures fell as much as 2.2% in London after a 2.8% drop last week.

Al-Qaeda inspired terrorism is a threat to the Western countries but the Islamic countries are encountering a much bigger threat of inter-sectarian conflict. For centuries the Sunni and Shi’a Muslims have coexisted in relative peace throughout the Islamic World but now certain vested interests are deliberately stoking the fire of inter-sectarian strife to distract attention away from the Home Front: that is, the popular movements for democracy and enfranchisement in the Arab World.

“To the intelligent man or woman, life appears infinitely mysterious, but the stupid have an answer for everything.” ~Edward Abbey