Crude oil rallies on market balancing optimism

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bmOne hundred and nineteen years to the day after the first Boston marathon, and oil markets are running higher once more. Looking beyond Doha disappointments, the market is finding solace in current supply outages, while hoping to see market balancing picking up pace going forward. Hark, here are five things to consider in oil markets today:

1) Currency moves are being thoroughly supportive for the crude complex today, with the yen moving to a near-18 month high versus the US dollar. Commodity currencies such as the Aussie and Kiwi dollars have soared to 10-month highs, as risk appetite chomps at the bit and global equity markets push to new highs for the year.

The Canadian dollar has also rebounded to a nine-month high, as the attractiveness of the US dollar wanes amid the lesser need for a safe haven. Given the flip-flop, see-saw inverse relationship betwixt crude and the dollar, the dollar heads lower….and crude looks up.

2) All is fairly sparse on the economic data front again today. The key release of note overnight has been from Europe, relating to ZEW sentiment data. While current conditions for Germany were below consensus, the six-month economic outlook for both Germany and the Eurozone were better than expectations; Germany reached a four-month high, the Eurozone saw the best showing in three.

In the US, we have had building permits and housing starts, both of which were below expectations.

3) As the dust settles post-Doha, a piece from Reuters suggests we should look to Latin America to rebalance the market via falling output. Digging into our ClipperData, production losses are already manifesting themselves in lower exports for Venezuela, Mexico and Colombia.

Venezuelan production was seen down 11.9% in Q1 versus year-ago levels, according to OPEC data. Our ClipperData show exports dropped….by 11.8%. On the aggregate, the three Latin American nations saw Q1 crude exports down 13% versus year-ago levels. Production losses are underway, and should continue given aging oil fields and the ongoing lack of investment (Venezuela, Mexico) and lower drilling activity (Colombia).

ClipperData Mexico Venezuela Colombia crude oil exports

4) Rumors continue to abound about current Iranian crude exports, and future expectations for production. Today’s rumor has come from deputy minister Rokneddin Javadi, who has said Iran’s production will reach pre-sanction levels by late June – a level close to 4 million barrels per day. According to Javadi, production is already up to 3.5mn bpd; last week’s OPEC report pegged March production at 3.29mn bpd.

5) While I was affirming the aforementioned Iranian production number from the OPEC report, I was distracted by the below chart.

We discussed last week how the OPEC report showed Indian oil demand growth looking robust, while we continue to see in our ClipperData that Chinese waterborne crude imports are blowing the doors off last year’s numbers, currently up 4% year-to-date (and up a scorching 14% so far in April versus year-ago levels).

The Middle East is also continuing to be a sponge to soak up oversupply in the market. The region saw oil demand growth of 200,000 bpd last year, in large part driven by Saudi Arabia. This year, further demand growth of 150,000 bpd is expected.

Middle East oil demand growth