Weekly crude Storage numbers bucked the Historical trend of late year tax driven draws and reported a hefty build.(even bigger if we exclude West cost draw).Not only bigger supply ,production increased as well.
The demand side of the ledger was also bearish .Total refinery input demand was down .12 % and total products supplied( consumer demand) was down.16%.A bearish mix for sure.This is taking the wind of the sails of the CL brent spreads as well.CL cal Spreads also trading lower post number
Today we see march and April Crude/ Brent spread trade positive.The last time we saw a consistent trade of WTI at premium to Brent was In late 2009.A couple of reasons being put forth.
- US production to drop quicker then thought.GS out with a note this week slashing production estimates by 20k vs estimates 2 weeks ago.Iran coming on line and no slowdown From any OPEC could mean that production could take longer to come down for brent Crude
- lifting of Export ban could cause an increase in Demand for CL as more demand from world markets could come.This could be a short term pop as the demand for cheaper priced USA oil will obviously cause price to rise and be more competative with Brent.This is why spread has touched parity
NAT GAS lowest close in 16 years.Warm weather comes at the worst time for gas bulls as record amount of gas in Storage will not be dented any time soon.This week and next week storage will be below 50,we could go all of December without a draw greater than 100! unheard of!
Energy sector within SPX +3.1%,best performing sector. #2 on list Financials +2.45%,HYG +2%
Crude Oil trading as if no stops triggered yet,I’m looking at 38.90 to be first area of stops
Daily Comex copper chart Mini trend line to be broken.Firm dollar and Comments from Influential Australian Bank saying 2016 will be worse than 2015,and standard charter saying they don’t see the drivers of demand reemerging in Q1 2016 for metals weigh.
Where to start. fixed income down due to Higher stocks,Firm Cpi in the USA ,UK and Spain. Bunds being driven lower by Higher ZEW and More debt To be issued by the Bundesbank.Also weighing on the long END is the run up in oil.
Similar to yesterday Front month CL is out performing the deferred months,Front month cal spreads are well bid.Front month CL has traded above the prior 3 days highs,a minor bullish sign.A draw expected In CL stocks and possibility of Lifting Export ban good enough reason to be a buyer.Oil related Companies are Higher in Europe and Higher here,leading sector in SPX.
Besides the bounce in oil related companies,the High yield ETF ( goes hand and hand with oil) is higher,Risk On for stocks.Historically the Santa Claus rally starts mid month,maybe once FED out of Way we buy”em up?
Dollar bid as FED almost certain to raise rates tomorrow,Euro down on day as the stronger Stocks provide a “sell” in Euro.
Risk on is our play today!We do get a dovish Hike from fed tomorrow this Theme will continue
Today The Front Month cal spreads were very well bid,As January oil outperforms the deferred months to the upside.I wont take too much from it as i blame upcoming option expiration and futures roll activity
- CLF/G +21%
- CLF/H +17%
- out right CLF +2%
- CLG +1%
- CLh +.6%
Above is daily chart of the Vix Z/H spread,normally it trades with a lower front month compared to differed.this makes sense in that the longer the time frame the more uncertainty.But this week we have the fed,High yield issues and option Expiration (for vix as well)quadruple witching mumbo-jumbo.So Vix curve is backwardated,More risk expectations for this week compared to further out in time.This is highly unusual term structure,not unheard of,but one that happens infrequently.Nobody will be in any hurry to buy stocks until later in the week,or until the backwardation eases.
A couple items that may have caused bounce in CL
- . Whiting,Indiana refinery approaching full production after restart of Refinery that has been shut for a few days.. Cushing has dedicated pipeline that flows directly to facility.Less oil at cushing=Bullish price,Also More demand for Oil at the margin.
- Ethylene barge has caught fire in Houston ship channel,it is closed.Sometimes closure of Ship channel delays delivery of oil to refiners,thus refiners may have to buy oil from different sources=bullish price.
- Within the spending bill that congress is working on the hill website says “almost 100% chance oil export ban is lifted” as part of deal.This should be bullish CL but could weigh on brent
Cl has traded above Fridays pit high,a few stops were triggered. January Brent expires tomorrow so gyrations in that month,as goofy as they are will have impact on deferred months.
Also bullish for price is that calendar spreads for both Brent and Cl are stronger on the day.This is a very minor item but every little bit helps in an extremely over sold markets
Yields higher across the board ,2 yrs +6 Bps, 5,10 and 30 years +8 bps .Yield curve steeping as 2/30 +2.331 5/10 +.71 ticks.I believe profit taking pre fed meeting.In the Swap space there is a tightening in spreads , biggest move in over 2 weeks.This is weighing on treasury prices as tighter swap spreads and higher yields go hand and hand
Still a Confusing type day as Bonds ignore the risk off environment and trade on their own issues.
Weekly HYG graph trading to multi year lows. Not good for risk