David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    The Weak Spot in the Oil Market That Traders Are Missing

    This article by Stephanie Ying for the Wall Street Journal may be of interest to subscribers. Here is a section:

    Faltering demand in Germany has preceded weak industrial data, which raised fears of a continued slowdown in Europe’s largest economy. Industrial production dropped for the fourth straight month in December, and Germany’s economy contracted in the third quarter of 2018 for the first time since 2015.

    Standard Chartered analysts warn that the weakness could spread to other parts of Europe, further undermining demand for oil.

    German demand makes up a minor fraction of the world’s oil consumption; the country was the 10th largest oil consumer in 2016, accounting for 2% of the global total, according to the U.S. Energy Information Administration. Since China made up 13% of oil consumption as of 2016, a drop in Chinese demand growth would likely have a comparatively larger impact.

    Additionally, signs of slowing demand in other parts of Europe haven’t materialized, Mr. Horsnell noted.

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    Musings From The Oil Patch February 5th 2019

    Thanks to a subscriber for this particularly detailed edition of Allen Brooks’ report for PPHB. Here is a section oil related equities:

    Musings from the Oil Patch January 23rd 2019

    Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section:

    China Is Said to Offer Path to Eliminate U.S. Trade Imbalance

    This article from Bloomberg News may be of interest to subscribers. Here is a section:

    China has offered to go on a six-year buying spree to ramp up imports from the U.S., in a move that would reconfigure the relationship between the world’s two largest economies, according to officials familiar with the negotiations.

    By increasing annual goods imports from the U.S. by a combined value of more than $1 trillion, China would seek to reduce its trade surplus -- which last year stood at $323 billion -- to zero by 2024, one of the people said. The officials asked not to be named as the discussions aren’t public.

    The offer, made during talks in Beijing earlier this month, was met with skepticism by U.S. negotiators who nonetheless asked the Chinese to do even better, demanding that the imbalance be cleared in the next two years, the people said.

    Economists who’ve studied the trade relationship argue it would be hard to eliminate the gap, which they say is sustained in large part by U.S. demand for Chinese products.

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    Outlook for 2019: The Game Has Changed

    Thanks to a subscriber for this report from KKR which may be of interest to subscribes. Here is a section:

    Oil Set for Biggest Weekly Gain Since 2016 on Saudi Supply Cut

    This article by Grant Smith for Bloomberg may be of interest to subscribers. Here is a section:

    “Underpinning this wave of buying is mounting evidence that Saudi Arabia has taken an axe to its oil production,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. Oil’s positive start to 2019 follows its worst quarter in four years and a 20 percent annual loss driven by panic over a growing glut of crude. While OPEC’s output plunged by the most in almost two years last month and producers have pledged to curb supplies through the first half of 2019, concerns about oversupply prevail as stockpiles at America’s main storage hub show signs of swelling.

    And

    The majority of oil executives surveyed by the Dallas Fed are still planning to boost spending in the next year, even after a plunge in prices. Saudi Arabia raised pricing for most crude grades to Asia and for all blends to buyers in the U.S. for delivery in February as the world’s biggest exporter cuts output to clear a global oil glut. As the new year begins, the oil market looks set to be dominated by big shifts in production. A few months ago, investors were struggling to comprehend just how much cash the largest oil companies were about to dump on them. Those mountains of money have now been reduced to mere hills.

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    Will Winter of Discontent Make Summer of Slowdown?

    Thanks to a subscriber for this report from Douglas Porter for BMO focusing on the Canadian market. Here is a section:

    In normal times, it’s Canada’s turn to shine at this later stage in the cycle—typically benefitting from rising commodity prices and still-solid global growth. But the TSX was bludgeoned this year (down double-digits) by trade tensions, a housing slowdown and weak domestic oil prices. Next year’s growth outlook is dulled by oil production cuts, slower U.S. spending, slipping auto sales and the overhang of record consumer debt. Providing a mild offset will be the new LNG project, mildly stimulative fiscal policy in the lead-up to the October federal election, as well as (presumably) some certainty on the North American trade front. But with the big interest-sensitive sectors still gearing lower, we look for 2019 Canadian GDP growth to simmer down to a 1.8% pace following this year’s as-expected 2.1% advance. With population growth recently clocking in at 1.4% y/y, this points to quite modest per capita gains.

    Even this more restrained GDP growth will tighten the labour market further, producing the lowest unemployment rate seen in Canada since the early 1970s. This will be the key ingredient convincing the Bank of Canada to tighten further in 2019, tempered somewhat by Governor Poloz’s view that there is still some hidden slack in job markets—surprisingly sluggish wage growth recently lends serious credence to that opinion. Overall, we look for the Bank to hike rates two times (50 bps) in 2019, following a year when policy actually met expectations to a T. Curiously, 10- and 30year Canadian bond yields are now only slightly above year-ago levels, and the GoC curve is even flatter than the flat Treasury curve; bonds clearly expect cooler Canadian growth next year as well. That view also appears to be built into the Canadian dollar, which spent most of the year on the defensive amid trade tensions and wobbly WCS prices. We look for only a mild recovery in 2019 for the loonie amid firmer oil prices and if/when the USMCA is ratified.  

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    9 Grey Swans for 2019

    Thanks to a subscriber for this report from Nomura which may be of interest to subscribers. Here is a section:

    Indian Stock Market Leapfrogs Germany's as Economy Booms

    This article by Srinivasan Sivabalan for Bloomberg may be of interest to subscribers. Here is a section:

    India’s ascent on the global stage has claimed another victory after its stock market overtook Germany to become the seventh largest in the world.

    The Asian giant edged past the equity market of Europe’s largest economy for the first time in seven years, according to data compiled by Bloomberg. That means, after the U.K. leaves the European Union in March, the bloc would have only one country -- France -- among the seven biggest markets.

    The move reflects India’s positive returns this year as companies’ reliance on domestic demand enabled them to avoid the meltdown in other emerging markets spurred by Federal Reserve tightening and a trade war between the U.S. and China. It also highlights the challenges facing the EU, including its future relationship with the U.K., a standoff with Italy over budget allocations and separatist clashes in Spain.
     

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