Natural Gas

When forecasting how much oil will be available in future years, most agencies, including EIA, IEA and BP appear to adopt a similar 'work-backwards from GDPO growth expectations' method. It seems that this approach has a fundamental flaw. It doesn’t consider the possibility of continued low oil prices and the impact that these low oil prices are likely to have on future oil production. Hoped-for future GDP growth may not be possible if oil prices, as well as other commodity prices, remain low.

If Inventories down, then buy oil at the fastest pace in 2 months. That appears to be the algo logic as talking heads additionally blame Saudi airstrikes on Yemen for the over 6% surge in WTI in the last 2 days. However, as crude nears $62 (6 month highs) once again, we note that not only Saudi oil production just hit a new record high, but US production hit a new cycle high last week (DOE data today), and this is happening as China's energy demand grows at the slowest pace since 1998.

After a Chinese session which following the MSCI failure to include Chinese stocks in its EM index, if only for the time being, was largely a dud with Shanghai stocks actually dropping by 0.1% after a late day selloff, eyes turned to Europe, which once again did not disappoint and where the bond rout continued apace, with the 10Y Bund yield spiking just after the European open, and rising above 1.05%, the widest level since September 19, before recouping some losses and trading just around 1.00% at last check.

The financial pages of Canadian newspapers have been full of headlines lately announcing the potential of two large shale oil fields in the Northwest Territories said to contain enough oil to rival the Bakken Formation of North Dakota and Montana. While the report from the NEB does indeed point to a very large pool of potential shale oil, getting it out of the ground will be no small feat, especially at today's prices.

Hungary becomes the first European country to sign on for China's ambitious Silk Road initiative. Beijing hopes the program will serve to relieve the country's industrial overcapacity problem while facilitating a tough transition to a consumer-led economic model. Given the growing number of headwinds China faces, "One Belt, One Road" may represent the counrty's 'one chance' to rescue the flagging economy.

While there were key macroeconomic data out of Asia earlier in the session, with Japan revising its Q1 GDP up from 2.4% to 3.9% (due to an upward revision to capex) making some wonder if it simply didn't snow in Japan this winter, as well as Chinese trade data that was once again disappointing with the third consecutive drop in exports coupled with an 18.1% collapse in imports hinting that nothing is going well in China's economy (which once again sent stocks soaring this time up another 2.2% on certainty another PBOC rate cut is imminent, pushing the PBOC to a fresh 7-year high of 5,132), it was actually a leaked Obama comment on the strong USD that moved markets.

In yet another sign that Russia and China are set to work together to extricate themselves from a dependence on the dollar specifically and on Western financial institutions more generally, Russia’s largest bank has, for the first time, extended yuan-denominated letters of credit in concert with the Chinese Export-Import bank.

When OPEC did not cut production last November, the oil market collapsed in shock and awe that the cartel would not just give in and allow non-OPEC members to walk away with market share. Today, in Vienna, "exactly as expected," OPEC once again confirmed production will remasin at 30 million barrels per day in the face of the global oil glut and prices for WTI and Brent have jumped $0.50 to $1.00 (we presume on machines and removal of a worst case boost to production).

• Europe shares set for worst week of 2015 (Reuters)
• Jobs Report Not Likely to Trigger June Rate Hike (Hilsenrath)
• U.S. jobs market seen firming despite lackluster growth (Reuters)
• Gross Says Bond Rout Scary as Hell Even Without Bear Market (BBG)
• Apple Is the New Pimco, and Tim Cook Is the New King of Bonds (BBG), which ZH said in 2013
• In 'year of Apple Pay', many top retailers remain skeptical (Reuters)
• OPEC Nations Signal Few Prospects for Oil-Production Change (BBG)
• China regulator says amending rules on margin trading, short selling  (Reuters)

After yesterday's unprecedented volatility fireworks across all markets and continents, today so far has been a modest disappointment, with no crashes and subsequent surges in China, where the Politburo's only achievement was keeping the bubble dream alive by pushing the Shanghai Composite over 5,000 for the first time since January 2008, closing the index 1.5% higher on the day - a very modest gain by China's recent blow-off top standards.  Europe, too, has been relatively tame with the 10 Year Bund starting off on the wrong foot, the yield rising back above 0.91% before once again dipping to the upper 0.8% range, tracking the move in the EURUSD tick for tick, which also is a tractor beam for the US 10 Year. On the equity, front, things are just as muted, with futures at the Low of Day as of this moment, despite yesterday's last minute manic buying spree, the S&P set to open below 2100 as a result.

For once Mario Draghi was right. A day after the European central bank head warned of a spike in volatility, volatility did just that, with markets everywhere from China to Europe seeing volatility explode.

Reports indicate that the regime is making air-strikes in support of #ISIL's advance on #Aleppo, aiding extremists against Syrian population

— U.S. Embassy Syria (@USEmbassySyria) June 1, 2015

Greece has received what The New York Times recently described as “dueling sales pitches” on two proposed natural gas pipelines, with the US pressing Athens to support The Southern Gas Corridor rather than Gazprom's Turkish Stream project. It appears Moscow may have made the more convincing case because, much to Washington's dismay, Greece is set to sign an MOU for the Greek portion of The Turkish Stream pipeline in June.

Greece still has one card left to play in fractious negotiations with creditors: the so-called 'Russian pivot'. Over the course of difficult talks between Syriza and the troika Moscow has, at various times, sought to take advantage of the hostilities between Athens and Brussels by making a series of overtures including the possibility of Greece joining the BRICS bank. Now, at least one Greek official says the country will likely accept the invite.