A few thoughts on oil

Yesterday’s EIA numbers reported the smallest amount of Saudi Imports in 2 years

Overall oil Imports last week were lowest in almost a year,thus more demand for domestic oil

Valero not taking any Venezuelan Crude to run refineries.Have to turn to other suppliers to get oil

Cl Dec/Dec spread continues to rally indicating supply worries
June/Dec Cl cal spread another example of Supply worries

Morning 1-31

After yesterday’s Dovish Fed, meeting the probability for a RATE CUT in December is 13% January 2020 23%. Gold trading at 9 month, working 4th consecutive monthly gain highs helped by the weaker dollar/ dovish fed. U.S. Indices NDX, SPX, and Russell roughly at 6-week highs. Per Mizuho “As of 5PM ET yesterday, 180 S&P 500 companies have now reported 4Q18 results. 72% beating EPS ests on +17.7% growth. 62% topping sales ests on +5.9% growth. “

 Out of the Eurozone GDP in line with expectations but German retail sales missed badly, continuing the run of below consensus economic releases for EZ largest economy. A narrow range in Euro trading little changed, Bunds a bit higher and European Stock markets mixed. Crude oil trying to break out to upside currently trading at 2-month highs as Lower OPEC production finally pushing prices higher. Yesterday’s EIA oil data showed the least amount of Saudi Arabian oil imports to the USA in months. Natural gas little changed to higher. Copper trading at 6-week highs as the Less fed rate lifting all “risky assets”

Event risk for today is the U.S. / China trade talks, President Trump already out with a few tweets “China’s top trade negotiators are in the U.S. meeting with our representatives. Meetings are going well with good intent and spirit on both sides. China does not want an increase in Tariffs and feels they will do much better if they make a deal.” In addition, “No final deal will be made until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long standing and more difficult points. Very comprehensive transaction” Slim possibility anything definitive to come from these meetings but if a trade deal was announced it would give a nice boost to risk

 Chinese markets closed all next week

Today’s Calendar

  • 7:30 Q4 employment cost index
  • 8:45  Chicago PMI
  • 9:00 new Home sales

Rate hike probabilities

Fed rate hike Probabilities on 1-15

Rate Hike Probabilities 1-29

A slightly higher Chance for rate hikes as earnings season progresses and Global slowdown narrative already run its course.

If Inflation ,as usual could maintain and upward trajectory the above probabilities will change.A Few Inflation metrics to see what Inflation has been doing, it has not been trending higher.

U.S. 5-year breakeven Rates bounced to start the year but now have moved sideways
the 5y5y Inflation swap also bounced at beginning of this year,But unlike the BE 5 yr it ha started to move lower.
UIG The NY Fed published underlying Inflation gauge captures sustained movement in inflation from information contained in a broad set of prices , activity and financial data. This metric encompasses more then just prices as you would see in CPI.Trend is turning lower.

Nervous

Markets so for this morning this trading with a bit of nervousness a bit of risk off or flight to safety.less the Steller Consumer confidence Report impacted by Shutdown so lets hope next month recaptures some of the Lost Confidence, report is trending lower last 3 months.Comments from the Director of national Intelligence Coates not very uplifting , saying “U.S. intelligence officials traveling around U.S. meeting with companies to discuss threats from China”. Also “China and Russia more aligned against the U.S. than any point in ‘Decades’ ,Lastly ” Looking to see if Chinese Gov’t is using Technology Firms to spy on U.S. . “

FAANG Stocks a bit heavy, worries about apple earnings after close,Amazon price target cut and Fedex working a new next day delivery method option all weigh on the stock, AMZn -2% ML fang index -1.7%,NDX -1%,Sp

Dollar small bid Gold higher and the weaker Stocks ,Nasdaq=Stronger bonds.

Morning 1-29

  Borrowing Needs

(Bloomberg) — The U.S. Treasury Department indicated that the government’s borrowing needs are rising faster than previous
estimates as the Trump administration finances a widening budget deficit. The department expects to issue $365 billion in net
marketable debt from January through March, up $8 billion from its estimate in October, according to a statement released
Monday in Washington. The Treasury sees an end-of-March cash balance of $320 billion, unchanged from its forecast three
months ago. In its first estimate of the April-June period this year, the department estimated borrowing of $83 billion, $11 billion
more than in the same period last year and the most for that quarter since 2012.

European Equity Comments via Reuters

Deutsche Bank believes “the growth scare is now priced out” and recommends reducing the cyclical exposure following an 8 percent outperformance vs defensives since the start of the year.

“We reduce our overweight in European cyclicals versus defensives,” DB strategists say, as they downgrade insurance and construction materials to underweight from overweight and airlines to benchmark from overweight, while upgrading personal & household goods to overweight from underweight and food & beverages to benchmark from underweight.

“While our projections for a recovery in Euro area PMI momentum and rising US bond yields over the coming months imply only slight further upside for cyclicals versus defensives (2% until end-Q1), we prefer to maintain an overweight in cyclicals overall as a hedge against the possibility of a boost from a US-China trade agreement by March 1,” they add.

(More) China Stimulus

(Xinhua) — China unveiled a raft of measures on Tuesday to secure stable domestic consumption growth in 2019.
The policy plan, jointly released by 10 ministry-level authorities including the National Development and Reform Commission, will inject new impetus into automobile sales, urban and rural consumption upgrades, spending on new  products and services, and improvement in the consumption environment. Chinese markets closed next week for New Year’s celebration

 A theme for Overnight trade, Waiting

 Disappointing Earnings from Germanys SAP, Biggest Dax component initially weighed on Stocks overnight but indices have clawed back into the green. SAP still trading lower by 3.5%. A handful of U.S. Earnings this morning highlighted by 3M have provided a bit of optimism as traders come on line this morning. All base metals trading higher this morning Copper +.4%, Nickel+1.2%. The U.S. has imposed sanctions on Venezuelan oil industry, markets shrug. Crude and Brent both +1%.Thinking is once Maduro Steps down Sanctions will be lifted so a Not a long term concern for markets for now. Treasuries and Bunds Sideways as is dollar index. Waiting for a catalyst

China trade negotiations start tomorrow and have not gotten off on the wrong foot as the U.S. charged Huawei with bank and Wire Fraud, breaking Iran sanctions and IP theft. China Vice premier will meet with Trump at the conclusion of talk on Thursday.

Event Risks:

  • Fed meeting tomorrow focus will be on balance sheet and Global growth worries
  • A round of Brexit amendments to be voted on in parliament today Overnight GBP vol highest in months so some worries about outcome of votes.PM May could lose control  of Brexit process.
  • John Bolton said the U.S. is considering sending 5k troops to Columbia to monitor Situation In Venezuela
  • Apple earnings after close ,3:30  attention must be paid

Global Gasoline margins Plunge -Reuters

Eventually this will hit oil demand

US refiners have overproduced gasoline as they ran full out to capture strong margins

New York/Singapore/London: Refining profits for gasoline are crashing around the world as consumption stalls amid a huge wave of new supplies, resulting in record inventories in Asia, America and Europe.

In the US market, gasoline margins sank to $5.22 per barrel on Friday, the lowest seasonally since 2009, weighed down by weak demand for the fuel and excess supply.

The low margins, known in the industry as cracks, come as US gasoline stockpiles rose to 259.6 million barrels last week, the highest level on record, according to figures released on Thursday by the US Energy Information Administration. The EIA began collecting such data in 1990.

US investment bank Jefferies said in a note on Friday that the “gasoline glut keeps getting worse”.

Light distillate stocks, including gasoline and naphtha, in key hubs (the United States, Singapore, Japan and Amsterdam-Rotterdam-Antwerp) are at their highest since at least 2005, and up by 21 million barrels year-on-year, consultancy FGE said.

Refiners in the United States have overproduced gasoline in recent months as they ran full out to capture strong margins for distillate fuels such as diesel, market participants said.

“Overproduction of gasoline ensued and now you’re in a situation where in various parts of the world gasoline cracks are basically zero or negative,” said Zachary Rogers, an oil markets analyst at consultancy Wood Mackenzie.

The overproduction of gasoline is also down to the surge in American shale oil output, which has helped drive US crude production to an unprecedented 11.9 million barrels per day.

US shale oil tends to be light and sweet in its quality, resulting in a high yield of fuels such as gasoline.

“The global oil slate has shifted from majority sour to lighter, sweeter barrels. US shale has been the main driver of this,” said Matt Stanley, a fuel broker with Starfuels in Dubai.

Slowdown

Adding to the overproduction by refiners are concerns that fuel consumption will decline because of a global economic slowdown.

In New York Harbor, unusual amounts of tankers are being forced to idle in the region’s anchorages until onshore storage opens up, according to three trading sources.

There were at least 12 fuel tankers idling around ports in New York Harbor on Thursday, Refinitiv ship-tracking data showed.

In Europe, gasoline margins dropped to seven-year lows of minus $3.80 a barrel this week.

“It’s hard to make the case for taking a bullish position on the paper market now,” a European gasoline trader said.

Traders expect the glut in Europe to ease slightly as refinery maintenance season begins. Work starting on Friday at Europe’s largest refinery, Royal Dutch Shell’s Pernis, will involve shutting the plant’s gasoline unit, among others.

But the restart next month of a huge gasoline-making unit at ADNOC’s Ruwais refinery in the United Arab Emirates, idled due to a fire for more than two years, will add to the supply length in the market.

In Asia, gasoline margins in the Singapore trading hub are also negative, hitting minus $2.12 per barrel on Thursday, the lowest level since 2011.

Singapore’s onshore light distillates stocks, which comprise mostly gasoline and blending components, this month hit record highs of around 16 million barrels, data from Enterprise Singapore showed.

Beyond a slowdown in demand, Asia’s gasoline glut is a result of surging exports from China, where refineries are producing more fuel than the country can absorb.

Gasoline markets could get some relief in the next few months as refiners perform their spring turnaround, reducing the amount of fuel produced, with some traders expecting slightly longer-than-needed outages as refiners pare stocks.

“I wouldn’t be surprised if some maintenance outages last a little bit longer than usual so stocks can be used down a bit,” a fuel trader in Singapore said.

Copyright (c) 2019 Sourced by MIST all rights reserved

Oil And negative sentiment

WTI -4% brent -3.37%,Gasoline -3.9% and Heating oil -2.9%.

Both Crude And brent headed for worst percentage drop of the Year.Couple of reasons

  1. Caterpillar warning of Slower Global growth
  2. private data Forecasters calling for a hefty build in Cushing Stocks this week
  3. A Pipeline Carrying oil from permian to gulf coast expected to open sooner then initially planned.This could be causing issues with Spread relationships between the Different grades of Oil.Midland oil,proxy for periman supply down over 6% today and the spread with WTI having its first substantial drop in value since first week of year.The mars blend of Oil somewhat similar to the Venezuelan grades is down 7% today biggest drop since Christmas.less worries about supply Disruption causing a bit of selling in the Sour grade.
  4. cargoes of oil from North Sea expected to increase by 1=More supply
  5. Consistent issues; RBOB crack continue to trend lower at Multi year lows,Rig count from last week reported 1st increase this year and net Longs in brent at 2 month high,always a good contrarian indicator.

Energy Sector -1.73% second worst performer in SPX,Just a bit behind information tech,showing losses of 1.92% Only sector positive is real Estate. Nvidia -13% Cat -9.5% both off session lows,but still trading heavy. Stock market was looking to the Event risk later this week and got blindsided vy the Warnings this morning.

Pipeline story from Reuters

Enterprise Products Partners has begun the first steps to convert its NGL pipeline to crude service out of the Permian basin, a spokesman said on Thursday. The startup of the Shin Oak pipeline, expected in the second quarter of 2019, would provide Enterprise the option to divert NGL volumes from one of its existing NGL pipelines onto Shin Oak and repurpose the vacated NGL pipeline to crude oil service.