Two hundred and twenty-two years after Josiah G. Pierson patented the rivet machine, and the oil market remains as riveting as ever. (I’m here all week, folks). After yesterday’s API report gave a flourishing hat-tip towards a large build to crude stocks and a large draw to gasoline, oil is sliding amid a stronger dollar, while gasoline is pushing higher. Here are some things to consider today:
Jumping straight into economic data, the most insights we’ve had overnight have come from Brazil. Its mid-month inflation print dropped into single digits (at +9.95%), but still close to a 12-year high. Meanwhile, its unemployment rate jumped to 8.2%, its highest level in nearly 7 years.
Economic weakness in Brazil is strongly tied to the performance of the underlying resources it is rich in. Hence, as the price of key commodities for the South American country – such as soybeans, iron ore and crude – have headed south, so has its economy. As the chart below illustrates, the fate of the state-run oil company Petrobras tracks closely with oil prices. Hence as oil prices have charged lower, it is no surprise to hear this week that Petrobras has reported its biggest ever quarterly loss of $10 billion in Q4 of 2015, due to asset writedowns amid falling oil prices.
We have US weekly inventories on deck this morning, with last night’s humongous API crude build of 8.8 million barrels adjusting expectations ahead of today’s number. The API report also yielded a large 4.3 million barrel draw to gasoline stocks, pointing to a drop in refinery utilization (read: refinery maintenance) amid destocking from the winter to the summer blend. As we mentioned yesterday, our ClipperData showed strong crude imports last week amid a wealth of waterborne arrivals into the US Gulf, tipping us off to a crude build.
The chart below is a pretty nifty summary of the recent history of global refining capacity. While global oil demand has increased by