Weak data, strong dollar pressure crude lower

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jbDespite it being James Brown’s birthday (he would have been 83 today), and despite yesterday’s sell-off, oil prices are struggling to get up, get on up. Here are five things to consider on this third day of the fifth month:  

1) The Caixin PMI, the alternative measure to the official PMI manufacturing print released over the weekend, has shown a similar trend – that of worsening conditions. The Chief Economist for Caixin, Dr. He Fan, said that ‘the economy lacks a solid foundation for recovery, and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn’.

In contrast to the official PMI, this measure shows the ongoing contraction in the manufacturing sector – as it has done since February of last year.  In contrast, the official PMI has shown the sector expanding for the last two months, after contracting in the seven months prior to that.

China Caixin PMI

2) James Brown shares a birthday with Niccolò Machiavelli, who was born some 547 years ago, and there is something distinctly duplicitous about the Chinese economy; it continues to show wile and cunning in the face of apparent adversity. This duplicity can be seen in industrial production data, and in the petroleum data also (all paths lead back to energy, after all).

After reaching a six-year low for industrial production in January, March saw a strong rebound to 6.8% YoY. All the while, auto sales continue to drive on Chinese gasoline demand, led by SUV sales (hark, +46% YoY in March). Countering this, diesel demand has been contracting for the last two years. All the while, our ClipperData show that Chinese waterborne crude imports for April are at their highest since at least 2013.

3) On the economic data front elsewhere, we have seen Australia surprisingly cutting interest rates to to be more accommodative, as inflation reaches a record low in the resource-rich nation. Manufacturing in Blighty (the UK) surprisingly contracted last month, while Brazilian industrial production was down 11.4% in March versus the year prior, even worse than expected.

4) In similar fashion to China, the US is also seeing strong gasoline demand. In fact, February’s demand rose at the quickest annual pace in almost 40 years. At 9.2 million barrels per day, it was up 556,000 bpd on the prior year, the biggest increase since May 1978 – spurred on by cheap prices and a growing economy (mo’ jobs).

US gasoline demand

5) Yet one more impact from low oil prices, and commodities generally, can be seen regarding the sub-Saharan African economy, which is set to grow at its slowest pace in 16 years. Economic growth is projected to be at 3% this year, lower than the global average of 3.2% and down from 3.4% last year. Lower Chinese demand for Africa’s minerals, in combination with lower revenues for oil exporters, is putting the brakes on expansion in the region.

Historically, Nigeria is Africa’s largest oil exporter. As it battles for market share, while also battling against sabotage, Nigeria has seen exports drop 6% lower thus far this year compared to 2015 amid falling production. It awaits the return of its Foracados blend for export in June, after being taken offline due to pipeline bombings.

ClipperData Nigeria crude oil exports