Four hundred and thirty-five years after Francis Drake circumnavigated the world, and we continue to see the same themes circling the oil market at the start of this new week. Focus on the approaching Doha meeting is omnipresent, as is the oversupplied nature of the crude market. Here are six things to consider today:
1) After last week’s first-day-of-the-month deluge on the economic data front, we inevitably see the news flow hit the brakes today. We have seen the release of India’s manufacturing PMI, which was the best print since last July at 52.7. Across to Europe, and the Eurozone unemployment rate came in at 10.3%, the lowest since late 2011.
2) Producer prices for the Eurozone fell by the most on a year-over-year basis since the belly of the Great Recession, underscoring the challenges faced by the European Central Bank to spur on inflation. Producer prices dropped by 0.7% on the prior month, as falling energy prices in February remained a drag.
3) The latest CFTC data out on Friday showed that short positions held by speculators increased for the first week in eight. The corresponding ICE data for Brent crude showed a similar trend, with short positions rising for the first time since early February. This reversal of sentiment could well be coinciding with a move lower for oil prices once again.
4) Not wanting to harp on about the upcoming Doha meeting (I’ll leave that to everyone else), but rhetoric from Prince Mohammed bin Salman that Saudi Arabia will only limit production should everyone else follow suit has put the cat among the pigeons. Once again.
Swiftly following these comments has been news via Iran’s Shana news service that Iranian exports have risen 250,000 bpd last month to over 2 million barrels per day (we see exports shy of this number, but hey), while Russian output just hit a new post-Soviet high in March. As has been the situation now for well over a year and a half, everyone wants everyone else to cut production…and no-one is willing to do it themselves.
5) Looking at our ClipperData in relation to rising output, and on Friday we revealed that Iranian crude and condensate exports into India last month jumped above 500,000 bpd. This rise has now been highlighted by other sources, confirming that private refiner Reliance Industries has resumed purchases after a multi-year lay-off. As for Russia, our ClipperData show that waterborne crude loadings in March were 13% higher than the year prior, as Russia pushes more crude out onto the global market.
6) Finally, the US dollar not only continues to play a key role in influencing commodity prices, but it has also had a big impact on stocks and emerging markets. Hence, just as the weakness in the US dollar this year has driven commodities – and specifically, our dearly beloved crude complex – higher, it has also helped to boost confidence in emerging markets and encourage a risk-on attitude.
As the below graphic illustrates, flows into emerging markets have picked up in the last month or so, as the two key constituents of the US dollar index, the euro and the yen, have both rallied strongly.