Crude oil looks to OPEC meeting, away from inventories

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mOne hundred and thirty-nine years after Emile Berliner invented the microphone, and a strong nonfarm payrolls report has amplified the weekly gain for crude into the weekend, at least for now.

Let’s get the unemployment report out of the way. We saw better job creation than expected, with 242,000 jobs created (versus 190,000 consensus), while the unemployment rate remained at a near-8 year low of 4.9%. The chink in the armor of the strong report, however, came in the form of weekly hours worked and average hourly earnings, both which declined.

Aside from the (much too) avidly-watched US unemployment data, things have been fairly quiet overnight in terms of economic data releases. News from Brazil was been perhaps the most interesting – and encouraging – as January industrial production increased on a month-over-month basis for the first time since last May.

As we have spoken about recently, Brazil’s weakening economy is plain to see; it has manifested itself in our ClipperData via lower domestic waterborne flows, while just yesterday GDP data showed the Brazilian economy shrank last year by the most since 1990. In an odd twist of fate, the Ibovespa, the Brazilian equity index, has just entered a bull market – although driven mostly by the increasing prospect of Brazilian President Dilma Rousseff’s impeachment than anything else.

We know from Newton’s third law of motion, that for every action there is an equal and opposite reaction. Hence, as Brazil’s economy gets walloped due to its reliance on the health of the commodity complex, other economies in the region are doing rather splendidly.

gdp growth

Countries such as Chile, Peru and Colombia are resource-rich, and are in a similar situation to Brazil. Their economic health is linked to those countries which buy its commodities, hence the slowdown in China is crippling them financially. Meanwhile, Central American nations are not only less resource-rich, but they also have the US as their largest trading partner – whose economic health is in fairly fine fettle.

Accordingly, their economies are faring much better. Closer ties to the US, in combination with lower fuel costs – and commodity costs generally – mean that the region is expected to grow by 4.3% this year, led by strong growth from the likes of Panama and Nicaragua.

Switching gears, US natural gas continues to move lower and lower. (And lower). With a mild winter and ongoing record production levels, storage levels for natural gas continue to race away from historical benchmarks.

After starting winter at at record storage level of just over 4 Tcf, a mild winter has meant withdrawals have been persistently lagging. Hence, we find ourselves currently sitting at 2,536 Bcf, a whopping 46% above last year’s level, and 36% above the 5-year average:

natural gas storage

Finally, while much is being made about investment opportunities in Iran’s oil and gas sector after the recent lifting of sanctions, Germany is instead eyeing an opportunity on the renewables front.

The prospect seems mutually beneficial: the Iranian government is targeting renewable energy capacity of 5% by 2020, while Germany is salivating at a huge sales opportunity. After all, Iran experiences 300 days of sun per year on average. Germany is already Iran’s largest European trading partner (hark, 2.4 billion euros in 2014), and these ties could improve further as an economic delegation from Germany prepares to head to Iran in May.

Iran gen mix