Crude

Brutal news is pouring in from pretty much everywhere. The world, in short, is rolling over. Debt monetization on the scale so far attempted has failed to stop the implosion of tens of trillions of dollars of bad paper, growth has stalled and geopolitics has begun to turmoil. And none of this is a surprise. It’s just what you get when you put monetary printing presses in the hands of governments and/or big banks.

The US Oil Rig Count rose 2 to 574 last week. This is the first rise in rig count since mid August, continuing to track the lagged crude price. On top of rising production, surging inventories, and massive excess supply at sea, Crude is fading modestly on the news, hovering around $40.50.

Having fallen for 7 of the last 8 days, WTI Crude just traded with a $40 handle for the first time since August 27th. Oil is now down over 14% in the last 8 days, the fastest collapse since December 2014...

In true stop-running algo common sense, WTI crude jumped overnight, back above $42 briefly. However, a double whammy of warnings from IEA (of a "massive cushion" of 3 billion barrels worldwide) and the highest volume of supertankers for this time of year since 2013 has sent crude sliding back below $42.

For once, the overnight session was not dominated by weak Chinese economic data (which probably explains why the Shanghai Composite dropped for the second day in a row, declining 1.4%, and ending an impressive run since the beginning of November) and instead Europe took the spotlight with its own poor data in the form of Q3 GDP which printed below expectations at 0.3% Q/Q, down also from the 0.4% increase in Q2, with several key economies rolling over including Germany, Italy, and Spain while Europe's poster child of "successful austerity" saw Q3 GDP stagnate, far worse than the 0.5% growth consensus expected.

Oil storage problems are so severe that traders asking ships to go slow, and that is where we see something very strange occurring off the coast near Galveston, TX.

Two nephews of Venezuelan President Nicolas Maduro were set to appear in front of a New York judge today after the pair was accused of attempting to smuggle some 800 kilos of coke into the US. The case raises further questions about drug smuggling among Venezuelan officials and individuals with ties to powerful figures. For his part, Maduro tweeted the following:"The fatherland will follow its course. Neither attacks nor imperialist ambushes can harm the people of the liberators."

With the crude market on tenterhooks since API reported a huge surge in inventories (especially at Cushing), DOE reported a considerable 4.2mm barrel build (less than API's 6.3mm) but way above analyst expectations of a modest draw (7th week in a row). Cushing saw a very significant 2.24mm barrel build (API 2.5mm). Crude Production also rose near 3mo highs, putting firther pressure on crude prices which are whipsawing wildly on this data...

Just when you thought it couldn't get any worse - amid supply gluts, production surges, market share scrambles, and demand disappointment - it does. OPEC this morning confirmed not only no change in the already weak global demand picture but the current oil inventrory surplus is the largest in at least a decade. This has driven WTI prices down close to a $41 handle this morning (from over $48 a week ago) as simply put, there's too much oil and OPEC's grand strategy for solving this imbalance - pray for a colder winter...

The biggest event overnight came from Europe, where Draghi managed to once again jawbone the Euro lower by ober 50 pips when he told European lawmakers in a prepared testimony that downside economic risks are "clearly visible," repeating his October press conference statement, adding that the ECB will reexamine degree of accommodation in December as "inflation dynamics have somewhat weakened." And the statement that crushed the Euro: "If we were to conclude that our medium-term price stability objective is at risk, we would act by using all the instruments available within our mandate to ensure that an appropriate degree of monetary accommodation is maintained." I.e., another "whatever it takes" moment.

On the heels of placing its third former employee at the Fed this year alone, Goldman explains why the market is wrong about inflation and whyv a handful of ex-Goldmanites will hike by 200bps in the next two years.