One hundred and twenty years after the Tootsie Roll was introduced by Leo Hirshfield, and markets are coming unstuck after yesterday’s sugar high.
The April contract rolls onto the board for WTI, with focus once more on the mumblings and rumblings coming out of Ceraweek in Houston, and the appearance of Saudi oil minister Ali al-Naimi today. We get the API report this afternoon to mix things up ahead of tomorrow’s weekly EIA data, while we have already had a number of economic releases out from Europe to weigh up.
German economic growth for Q4 of last year was in line with consensus at +0.3% QoQ (+2.1% YoY), while German business confidence was better than expected for current conditions, but downbeat for the next six months. This was hot on the heels of a weak manufacturing print yesterday, stoking some concerns about the health of Europe’s leading economy.
While some nations try to stave off deflationary conditions, Brazil has sees its mid-month CPI climb to a new 12-year high at 10.84% YoY. We have had the big bad daddio of housing data out in the US today, the S&P Case Shiller, which showed house prices ticked higher by 5.7% YoY in December, a tick below consensus.
It is interesting to note that while our ClipperData show Arab Gulf loadings increasing on a year-over-year basis, as various OPEC members ramp up exports in an effort to compete for market share, we see that Latin American loadings were consistently lower on a year-over-year basis in Q4 last year.
Venezuela and Brazil account for nearly three quarters of Latin American crude loadings, hence strength in Brazilian loadings in Q4 of 2014, in combination with weaker loadings from both Brazil and Venezuela in Q4 2015 mean volumes have dropped on a year-on-year comparison. Brazil’s economic weakness can also be exhibited in their domestic waterborne movements; volumes dropped 6.6% in 2015, a sign of significant demand erosion amid recessionary conditions.
As we discussed yesterday, Exxon failed to replace its oil and gas reserves last year for the first time in over two decades. Nonetheless, as the chart below illustrates, oil and reserves have continued to rise. It has instead been the drop in natural gas reserves which have pressured the reserve replacement ratio below 100% for the first time since 1993. Natural gas reserves were revised down by 5 Tcf last year.
Company-specific news is causing ripples through commodityland™ today, as miner BHP Billiton has announced it has cut its dividend for the first time in fifteen years, slashing it by 75% amid earnings which reported a huge half-year net loss of $5.67bn. Meanwhile, Chesapeake Energy – who produces more natural gas than Exxon Mobil – is seeing its stock price spike amid acquisition rumors.
Finally, the below chart illustrates the total amount of exposure that US banks have to the energy industry on their books in terms of outstanding loans and lending commitments. The total? a whopping $123 billion.