It is the risk that the current 60% rebound in oil prices from 2016 lows is just another temporary bounce, that has forced Maersk to start preparing for the next oil crash. The company's CEO is confident that since the world keeps producing more petroleum than it can consume, it is "adapting its cost base to prepare for the risk of lower crude prices" according to Bloomberg.
Overnight strength in the USDollar has begun to rollover, most notably against the Yen, and that is sparking a bid in commodities - industrial and precious metals. Canada headlines (and Libya) along with dismal US jobs data have also piled on, sending WTI Crude to test $46 (and copper is rallying) as Gold and Silver surge...
The Fallout From The "Devastating" Canadian Wildfire: Over 500,000 Barrels Offline, $1 Billion In LossesSubmitted by Tyler Durden on 05/05/2016 08:57 -0400
Now that Canada has had a chance to evaluate the damage from the historic Alberta fire, the question on everyone's lips is what will be the near-term impact on oil production. The most comprehensive answer provided so far comes from Morgan Stanley's Benny Wong who estimates that the total number of offline capacity will be anywhere between 400 and 500 mbbl/d, with the shut-in expected to last about 10 days, potentially reducing total market output by as much as 5 million barrels.
While markets remain relatively subdued ahead of tomorrow's nonfarm payrolls report, after several days of losses in US stocks which pushed the S&P500 to three week lows, overnight markets ignored the latest weak data out of China where the Caixin Services PMI was the latest indicator to disappoint (dropping from 52.2 to 51.8), and instead focused on crude, which rebounded from yesterday's post inventory-build lows and briefly printed above $45/bbl over uncertainty related to the impact of Canada wildfires on production and how long will last. The bounce in WTI has meant Brent briefly traded at parity with West Texas for the first time in 6 weeks.
Ever wondered where the United States imports its oil from? Howmuch.net came out with some infographics to show that from 2000 to 2015. What we would highlight here is the notable shift from the U.S. depending heavily on Middle East countries and Mexico, to depending more on America's neighbor to the north, Canada.
The dollar's gyrations remain a key source of inspiration for traders with the fundamental focus continuing to switch between falling US and rising OPEC production, according to Saxo Bank's Ole Hanson. Having seen calendar 2017 almost hit $50 last week the realisation that further upside may be hard to achieve may has helped trigger increased demand for protection.
Overnight exuberance sparked by lower than expected Cushing build reported by API is fading on the heels of June OPEC headlines of no production limits (and rising Saudi production) heading into DOE inventory data. Crude inventories printed a significantly higher than expected 2.78mm build but Cushing saw a smaller than expected build of 243k. Gaosline surprised with a 536k build (API 1.17m draw) and Distillates saw a smaller than API build of 1.26m barrels. The biggest news was the biggest plunge in US production since July 2015, and yet inventories still rose suggesting that fundamentally this is and has been as much a demand story as one of supply (even as OPEC countries are happy to offset declining US output).
In a surprising development, the U.S. monthly international trade deficit decreased substantially in March 2016 from $47.0 billion in February (revised) to $40.4 billion in March, below the $41.2 billion expected, as exports declined by a modest $1.5 billion, a 0.9% drop to $176.62BN from $178.16BN in Feb. At the same time imports outright plunged by $8.1 billion, down 3.6% in March to $217.06BN from $225.13BN in Feb. Curiously this happened just as Canada announced a trade deficit of C$3.4 billion, the widest on record. In March, the US trade deficit excluding petroleum was $37.48 billion.
While there was no unexpected overnight central bank announcement unlike yesterday's surprise by the RBA which unleashed volatility havoc in the FX market, which promptly spilled over into all asset classes, overnight stocks around the world saw another leg lower without a tangible catalyst, while EM currencies fell to a one-month low after two Fed presidents raised concern investors had become too complacent in their belief that U.S. interest rate raises will stay on hold. Or perhaps all that is happening is that after ignoring Trump, the market is starting to finally price in the possible reality of the Donald in the White House (although as Jeff Gundlach pointed out, Trump would be a far better president for the economy and the market than Hillary or Bernie).
The 'odd' regime shift in the relationship between USDJPY and US equities continues overnight. Following some visible-handedness and follow-through momentum, Yen is weakening against the USD - normally a big flashing green sign for risk-on pajama traders but China's biggest Yuan devaluation in 9 months (since the August turmoil) seems to have stolen the jam out of the bull's donut as US equity futures extend losses, AsiaPac credit risk jumps, and USD strength is weighing on crude prices.
Notable weakness in oil prices amid growth/demand concerns today, following Genscape's (+821k) Cushing's big build report yesterday, and expectations for continued builds in overall crude and Cushing levels set up trades ahead of API's report with oil below $44 heading in. An overall crude inventory rise of 1.3mm barrels (almost double the 750k expectation) was not enough to trump a smaller than expected Cushing build of just 382k barrels (1.3m exp) which seemed to please the machines which ripped WTI back above $44 instantly.
For the moment, silver’s intermediate-term bull market remains in force, albeit with a record level of bearishness on the part of the “smart money”.