Crude

If this weekend's gruesome terrorist attack on Paris ended up being hugely bullish for stocks, then two subsequent events, a stadium-evacuation scare in Hannover (where Angela Merkel was supposed to be present) and a raid in north Paris which left several dead in the ongoing manhunt against the alleged ISIS mastermind, appear to have but some question into if not stocks then algos whether a rising wave of terrorist hatred across Europe is truly what central bankers need to unleash more QE. That said, we expect the current weakness to last only until the traditional USDJPY carry ramp pushes stocks traditionally higher.

After seven straight weeks of significant inventory builds, API reported a modest 482k draw. That was all the algos needed and WTI immediately ramped back above $41.00. However, what they likely missed was the 2nd weekly (huge) build in Cushing (1.5mm barrels) as we warned earlier on land storage starting to really fill...

Interest rates across the developed markets have been kept at emergency levels (and all time historical lows) for seven years. Do we think that allowing banks to access essentially free money is more or less likely to give rise to the sort of malinvestments that caused the financial crisis in the first place? If you believe that the answer is ‘less likely’, there is a job at your local central bank with your name on it.

If you follow geopolitics and the oil market (and really, you can’t follow the latter without following the former) you might be wondering whether the tragedy that took place in Paris last Friday may be enough to override the fundamentals for a while. As it turns out, even the start of a global conflict may not be enough to spark a sustained upturn when only around 47-m bbls of available ex-US commercial storage remain.

Yesterday's surge-pricing in US equities driven tick-for-tick by a remarkable rip in WTI crude prices (as despite 3 billion barrels of excess inventory, decided to rip on Mid-East war tensions) appears to be losing its anchor. Once again, USDJPY 123.00 will be all that matters...

Who would have thought terrorism is so good for stocks.

The allure of ill-gotten oil money remains strong. The lull in drilling has given oil companies more time to scrutinize their operations -- and their losses. As Bloomberg reports, during booms "they are moving at such a rapid pace there’s not a lot of auditing and inventorying going on," said Gary Painter, sheriff in Midland County, Texas, in the oil-rich Permian Basin; but "whenever it slows down, they start looking for stuff and find out it never got delivered or it got delivered and it’s gone." From raw crude sucked from wells to expensive machinery that disappears out the back door, drillers from Texas to Colorado are struggling to stop theft that has only worsened amid tens of thousands of lost roughneck jobs.

Pattern identification...

“If they end up doing nothing to address this budget issue ... Houston could be facing the same problem Chicago is now."

Russia’s central bank recently warned about the growing financial risks to the Russian economy from Saudi Arabia encroaching upon its traditional export market for crude oil. Russia sends 70 percent of its oil to Europe, but Saudi Arabia has been making inroads in the European market amid the oil price downturn. The result is a heavier discount for Russia’s crude oil, the so-called Urals blend. Russian officials have accused Saudi Arabia of “dumping” its oil in Europe, a move that Rosneft chief Igor Sechin said would “backfire.”

Overnight saw a significant ramp higher in crude prices as, presumably, the Paris attacks sparked further Mid-East tension fears and increased the war premium (as Japanese economic growth raises more demand conccerns). But that has all gone now as WTI Crude nears a $39 handle once again and, for the first time since February 2009, OPEC Oil Basket price has traded with a $39 handle.

"My guess is that we will have negative rates in Norway before there will be any talk of QE"...