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US EIA Oil Stocks preview: Oil rattled as Trump cancels stimulus talks
US oil stockpiles rose by more than expected during the week ending October 2nd.
Data from the American Petroleum Institute showed that oil inventories had grown by 951,000 barrels – more than double the 400,000 barrel build analysts had predicted.
The larger-than-expected build follows a smaller-than-expected draw the week before, casting doubts over the robustness of demand in the US.
While gasoline stocks fell by -867,000 barrels during the same period, this was a little short of forecasts and only just over half the size of the build reported the week prior. Distillate inventories fell by just over a million barrels after the previous week’s -3.4 million barrel drop.
Trump tweets: No stimulus discussions until after the election
Also weighing on crude oil sentiment today is the abrupt cancellation of negotiations over a new stimulus package.
President Trump, fresh out of hospital following his Covid-19 diagnosis, tweeted that the Democrats were ‘not negotiating in good faith’ and that talks would not resume until after the election.
Although markets still expect stimulus regardless of who wins the election, the cancellation of talks adds more waiting time to the already delayed second dose of fiscal support.
US EIA Crude Oil Inventories report on tap
Oil traders will be looking for an upside surprise today when the official US Energy Information Administration data is published.
Last week’s report showed a drop in oil stockpiles of nearly -2 million barrels. Analysts this week are expecting to see an increase of nearly 300,000 barrels.
The report is due at 14.30 UTC.
EIA oil inventories preview: Crude struggles after mixed API data
Both benchmarks headed back towards the two-week lows hit yesterday before returning to trade just under opening levels.
Crude is on track to record its first monthly loss in five months, while Brent looks set to end lower for the first time in six months.
API: Oil draw falls short, surprise gasoline build
The API reported a smaller-than-expected draw in crude oil inventories and a surprise build in gasoline inventories.
Crude oil inventories fell by 831,000 barrels in the week ending September 25th, against analyst forecasts of a 2.256 million barrel drop.
Gasoline inventories also disappointed forecasts, rising by 1.623 million barrels during the same period, instead of falling by 1.3 million barrels as expected.
In more supportive news, US oil production fell to 10.7 million barrels per day.
Rising coronavirus cases raise questions over global recovery
The rising number of coronavirus cases as winter approaches in the Northern Hemisphere has heightened fears of new restrictions that could curb economic activity and therefore demand for oil.
While certain parts of the global economy are bouncing back, others continue to be hammered by the pandemic. Airlines are a key market for oil and various restrictions combined with a general fear of air travel given the current circumstances has seen a huge drop in bookings.
On Tuesday the global Covid-19 death toll passed the 1 million mark, up from 500,000 three months ago, with the number of infected exceeding 33 million.
Traders are also worried that the US Presidential Election may not produce a clear winner on November 3rd, leading to more disruption for the world’s largest economy as both Trump and Biden contest the results.
US EIA oil inventories preview: Crude edges higher on mixed API report
Crude oil has moved off from the day’s lows of $39.30 to test $40.00, while Brent has risen back towards $42.50 after earlier falling towards yesterday’s intraday lows around $41.61,
Mixed API report shows unexpected oil build, large gasoline draw
The latest US oil inventories report from the American Petroleum Institute showed a surprise build in crude stockpiles.
US oil inventories rose by just shy of 700,000 barrels in the week ending September 18th, according to the latest API report. Analysts had predicted that crude stockpiles fell by 2.256 million barrels.
Although moving in the wrong direction the build is relatively small, especially considering the dent to inventories made by the previous week’s 9.517 million barrel draw.
The report revealed that US oil production increased during the period, but at 10.9 million barrels per day is still 2.2 million bpd below the highs of 13.1 million bpd seen in March.
Sentiment had also been supported by a much larger-than-expected draw in gasoline, with stockpiles falling by 7.735 million barrels compared to analyst’s expectations of a 614,000 barrel drop. Distillates fell by over 2 million barrels.
The official US oil inventories report from the Energy Information Administration is due out later today.
Markets steady before Fed meeting, Hut Group pops as IPO market shines
It’s Fed day: risk sentiment remains broadly positive but the big-ticket event is the Fed policy meeting. US stocks rose Tuesday as the two-day Fed policy meeting kicked off.
Whilst there is relative calm in markets again after the tech-led sell-off produced a correction in the Nasdaq and a 7% decline in the S&P 500, the expectation on the Fed to be very dovish may lead to volatility should the market think the FOMC isn’t offering enough detail on the future path of monetary policy.
The S&P 500 added 0.52% and managed to close above the psychologically significant 3,400 level after running into resistance at the 38.2% retracement of the early September pullback, with the 21-day SMA sitting around 3,426, which may offer a further test for bulls. The Nasdaq added 1.2% as Tesla shares rose a further 7%, extending the rally from Monday’s 12% gain.
Overnight, Tokyo was flat as Yoshihide Suga was elected as Japan’s new prime minister, replacing Shinzo Abe. European equity markets were slightly higher in early trade, though the FTSE 100 dropped.
FOMC preview: what to look for from today’s Fed announcements
There are several things to look out for from the Federal Reserve today, not least some firming up of the details around the new average inflation targeting regime. After Jackson Hole, there were some unanswered questions for the FOMC.
There was not much in the way of detail of how the Fed plans to deliver the new AIT framework, for instance. And Powell’s speech lacked in any real specifics on the nature of forward guidance that the FOMC is clearly leaning towards – this will be an important lever of the AIT approach, so it needs to be clarified at this meeting.
Should forward guidance be based on a time horizon or specific economic data? Yield curve control has been shelved as an idea by the FOMC but remains an option should it desire. Today’s statement and press conference with Powell will be of great importance to iron out how AIT will be delivered.
Powell stressed that if ‘excessive inflationary pressures’ were to build, or inflation expectations were to rise above levels consistent with its mandate, the Fed ‘would not hesitate to act’. This gives it a degree of latitude down the line should there be a major inflation overshoot, which as noted on several occasions, is a very real possibly if expectations become unanchored.
So far, after rising sharply post the March trough in financial markets, US 10-year breakevens have levelled off, whilst benchmark bond yields have barely budged.
Fiscal stimulus in focus ahead of Fed statement
The Fed is also likely to lean heavily on the need for Congress to come up with fresh stimulus – it cannot do all the lifting here. Whilst a fifth package remains elusive, Nancy Pelosi has signalled that Democrats could delay the October recess in order to get a deal done, with the White House saying the $1.5tn package floated by the ‘Problem Solvers Caucus’ was worthy of discussion.
The Fed has not quite exhausted all its ammunition, but it’s very much in a position where it needs to wait for the fiscal support. Several Fed officials have been talking up the need for fiscal support.
There will also be updated economic projections to watch out for along with the tone the Fed strikes on the economic outlook – we know the Fed has taken a pretty cautious view of the economy and the loss of momentum in initial jobless claims may be a concern.
Looking ahead to today’s session, US retail sales will also be closely watched and may well show a sharp slowdown after Americans’ $600 stimulus cheques stopped. UK inflation figures earlier this morning showed a sharp drop in CPI inflation to 0.5% in August from 1.1% in July, as the Eat Out to Help Out scheme and the VAT cut on the hospitality industry bit into prices.
Hut Group IPO
Elsewhere, Hut Group shares got off to a lively start on their stock market debut, rising to 650p in what is the biggest IPO in London this year and for several years. As noted when the filing was lodged, after a considerable ramp in tech valuations this year – eg, Ocado +100% in the last 12 months – this IPO looked like a well-timed move, at least on the part of the founder who is due a bumper £700m pay-out should all go well, whilst still remaining very much in control of the business.
The question is whether this 10% margin business deserves a tech rating. A standard listing makes it ineligible for inclusion on the FTSE index although its mooted market cap would be enough just to make the FTSE 100. Any standard listing raises eyebrows as it means no index inclusion and lower governance standards. Arcane incentive schemes and a founder share model are also suspect.
Founder Matt Moulding is also selling £54m of stock despite previously indicating he would retain all his shares. Heavy demand indicates what a tech multiple, zero per cent interest rates and a premium on growth can do for your stock.
Indeed, the IPO market continues to show considerable strength, which does not indicate significant signs of stress in capital markets. Snowflake, a cloud software business backed by Warren Buffett, got its IPO off cleanly at a price of $120, valuing the company at $33bn.
Apple unveiled new products, but investors were underwhelmed by products like the new iPad Air and new watches, with the shares flat on the day and ticking lower by 0.67% in after-hours trading. All investors really care about is the 5G iPhone launch, when it comes.
Oil climbs on back of large inventory draw
Crude oil prices rose after a surprisingly large draw on inventories and have now bounced over 8% from last week’s lows. API figures showed stocks fell 9.5m barrels in the week ending September 11th, much more than the narrow 1.27m barrel draw expected.
EIA figures today are expected to show a build of 2m barrels, which seems rather unlikely in light of the API report. Oil prices firmed despite OPEC and IEA reports this week indicating a slower recovery in demand in 2020 than previously forecast.
Nevertheless, prices look vulnerable to a further pullback as the near-term uptrend runs out of steam and the longer-term downtrend re-asserts itself.
US EIA oil inventories preview: Crude tries to claw back losses
Crude oil fell -7% yesterday to close at $36.88, while Brent closed -5% lower at $40.03. Both are moving higher today, with WTI up $0.60 and Brent up $0.53, but September losses are still in excess of -11%.
Saudi Aramco will cut prices for Asian buyers for a second consecutive month, and will cut prices for US refiners for the first time in six months. Chinese refiners have been snapping up cheap oil, importing record amounts recently, but it seems that stockpiles are now filling up.
It’s another worrying sign for the demand outlook, just a month after Aramco’s chief executive claimed Asia’s oil demand was almost back to pre-crisis levels.
Bank of America research adds to fears over oil demand recovery
At first it had been hoped that the global economy would pick up sharply once lockdowns were lifted, but the increasing numbers of coronavirus infections and some soft eco-data has put these assumptions into doubt.
Indeed, Bank of America Securities predicted yesterday that global oil demand won’t return to pre-pandemic levels for another three years. BofAS analysts point to the collapse in air travel, which they claim won’t be able to recover fully until a vaccine is developed – something they believe is still 12-18 months away.
US EIA crude oil inventories data delayed by Labor Day holiday
This week’s US crude oil inventories data is delayed by a day due to Monday’s Labor Day holiday. Figures from the American Petroleum Institute will be published at 20.30 UTC today, with the official Energy Information Administration data due at 15.00 UTC tomorrow (September 10th). EIA natural gas storage figures are released at 14.30 UTC as per usual.
US EIA Oil Inventories Preview: Crude edges higher after sixth straight API draw
Crude and Brent oil have moved slightly higher this morning after data from the American Petroleum Institute revealed another huge drawdown in US oil stockpiles.
WTI has edged up $0.17, or 0.4%, and Brent oil has added $0.24, or 0.5%. Both benchmarks are trading above their recent long-term ranges, although below the highs struck last week when prices reached levels not seen since early March.
API oil inventories: another huge decline for US stockpiles
The latest API report revealed another large draw from US crude oil stockpiles in the week ending August 28th.
As has become usual recently due to the highly unusual conditions in the market, the actual draw of 6.360 million barrels hugely outpaced the 1.887 million barrel drop that analysts had predicted.
Last week the API reported a 4.524 million barrel drop against expectations of a 3.694 million barrel decline.
Last week was the sixth consecutive week that oil stockpiles declined. Gasoline inventories also fell, with the draw of 5.761 million barrels representing only a slight moderation from the 6.392 million barrels the week before. Analysts had expected gasoline stocks to fall by just over 3 million barrels.
Distillates were down 1.424 million barrels, erasing a bit over half of the build seen the previous week.
Official data from the US Energy Information Administration is due for release during today’s New York session.
US manufacturing uptick supports crude
Oil market sentiment has also been lifted by recent US manufacturing data. The ISM manufacturing index for August climbed to 56.0 from 54.2. Analysts had expected the index to register a mild uptick to 54.5.
The reading is the third month of growth after the sector was hammered by the coronavirus lockdowns, and is also the highest reading since November 2018.
All eyes on Powell, oil steady in face of Laura
Golf can be bad for your career. Just ask Phil Hogan, the now ex-EU trade commissioner, who’s resigned after a golf dinner in Kildare which fell foul of Ireland’s coronavirus restrictions. Maybe he was testing his eyesight – ‘ah yes, I can see that prawn. I’m safe to go to Claridge’s now’. Golf hasn’t been this newsworthy since Tiger Woods went for a joy ride.
Global stocks hit a record high as the FTSE All World Index beat its peak set in February. The only word we can use to describe this is ‘liquidity’. It’s simply a result of a huge injection of stimulus and money that has needed to find a home. The S&P 500 and Nasdaq also both notched fresh record highs.
For the most part the path of least resistance is upwards – for global stocks led by the US that is probably true when there is so much liquidity and so little yield. But for the UK market, the path of least resistance seems to be sideways – the FTSE 100 remains anchored to 6,000 and it may take a move in the FX markets to drastically alter its range-bound price action.
Will Powell’s speech live up to expectations?
European indices were flat to slightly negative in early trade on Thursday ahead of Jay Powell’s speech at 14:10 London time. Investors are waiting for the substance of the speech amid expectation he will detail the outcome of the monetary policy framework review (that is the title of today’s speech).
The Fed chair is expected to tee up a new monetary policy framework based around average inflation targeting (AIT), which would let the Fed run the economy as hot as it likes for a longer period. Of course, he may skirt round the details and prefer to use the September FOMC meeting to make a formal announcement.
Expectations are rather high ahead of this speech – there is a potential to underwhelm.
WPP and Hays earnings hopeful, Rolls Royce dives towards one-year low
WPP shares rose 5% after the company reported a 15% drop in life-for-like revenues less pass-through costs in the second quarter but signalled the worst is over for the advertising market. The company also said it is on course to achieve the upper end of the £700-800m cost savings target and declared an interim dividend of 10p.
Trading is improving but lumpy. In July, the LFL revenue less pass-through costs of -9.2% was a steady improvement on Q2 but the performance across markets remains volatile.
Another good bellwether Hays said it’s seen some stabilisation in fees since May and ‘modest’ signs of improvement in permanent hiring. Net fees were down –11% for the year to the end of June, whilst pre-tax profits were –63% lower as a result of a collapse in recruitment due to the pandemic. Shares ticked up 1%.
Even worse news for Rolls Royce; shares slumped over 7% and neared the 52-week low after the engineer reported a £5.4bn loss due to the crippling of civil aviation during the pandemic. It also included a £2.6bn loss from FX hedges. Underlying revenues were down by a quarter. CFO Stepehen Daintith has resigned.
Hurricane Laura in focus for oil markets
Oil prices were steady as Hurricane Laura makes landfall in the US amid significant amount of production and refinery shut ins. The hurricane is at risk of strengthening to a category 5 storm. WTI (Oct) maintained the $43 handle but backed off from a 5-month high.
Yesterday the Energy Information Administration noted a draw of 4.7 million barrels last week, but oil inventories remain 15% above the average for this time of year.
The market reaction has been rather muted by the fact inventories are unseasonably high and demand is down compared to last year. Whilst more than 80% of Gulf of Mexico crude production has been shut in, stocks at Cushing at 25% above the five-year average, and distillates are 24% above average.
One further note on yesterday’s inventory data relating to travel and the airlines – over the four weeks to Aug 21st jet fuel product supplied was down 45.7% compared with the same four-week period last year.
FTSE comes under pressure ahead of Powell speech tomorrow
Stocks in Europe chopped sideways after fresh records were set on Wall Street and traders start to turn their attention to Federal Reserve chair Jerome Powell’s speech tomorrow. Tuesday saw risk appetite go off the boil after a strong start to the European session – the FTSE 100 ended sharply lower while the DAX closed at the session low to end flat on the day.
The timid recovery across European bourses has left the rally in the US looking even more impressive. A pullback in Apple shares did hit the Dow – it won’t have such a big effect come Monday when its weighting will fall with the stock split (the Dow Jones is a price-weighted index). Shares in ExxonMobil, Pfizer and Raytheon all fell as they were given their marching orders from the index, while their replacements – Honeywell, Amgen and Salesforce.com – all rose sharply. The S&P 500 rose 0.36% to a new all-time high.
The FTSE 100 has endured a tough 24 hours – having hit a high yesterday morning near 6,180, this morning the blue-chip index is testing the 6,000 support. Last week’s low at 5,948 is yet to be tested again, however, and bulls will be hopeful that a base is forming and the near-term downtrend off the June highs is ending. If the dollar weakens further and sterling rallies, this support level could go.
Data today is light – US durable goods orders forecast at +4.4% and +1.9% core, which would be a sharp slowdown from last month’s +7.6% (+3.6% core). The weekly EIA crude oil inventories report is also coming later today.
Oil rises as API data reveals forecast-beating draw, Hurricane Laura approaches
WTI rose on a bigger than expected API draw as well as concerns about Hurricane Laura affecting supply. The American Petroleum Institute (API) reported crude oil inventories fell 4.5 million barrels for the week ending August 21st, after a 4.3m barrel draw the previous week. The forecast for the EIA figures today is for a draw of 3.4m. WTI (Oct) rallied for the best part of yesterday to test the $43.50 resistance where it immediately backed off.
Crude prices continue to grind higher as the economic data continues to indicate a slow recovery.
Central bank speeches in focus as markets eye virtual Jackson Hole symposium
Andy Haldane, the Bank of England’s chief economist and leading V-shaped recovery proponent, will speak later. His optimistic attitude the economic recovery is at odds with many.
The real focus on the central bank front this week though is the virtual Jackson Hole Symposium and Jay Powell’s speech tomorrow as US cash equity markets open. Expectations are running high: Powell is set to use this to deliver a shift in the way the Fed approaches inflation, sending a dovish message to the market that the central bank is in this for as long as it takes. The lack of fresh fiscal stimulus only makes the Fed likely to be more dovish.
Essentially, we think the Fed will signal explicitly it is prepared to allow inflation to run hot for longer with a new average inflation target. All this means is the Fed will be lower for longer. This should support risk and could weigh on the US dollar, but there is a risk that inflation expectations can start to become unanchored as they did in the 1970s.
If inflation spikes and the Fed lets it by continuing to keep yields down, stocks and gold should be the main beneficiaries. The vast increase in the supply of money combined with major supply chain readjustments and reshoring taking place against the backdrop of US-China trade tensions, suggests a bout of inflation is around the corner when a vaccine arrives and the real recovery takes hold, despite the initial disinflationary effects from the pandemic.
Will Powell speech hit the dollar?
The US dollar has marched lower since its March blowoff. But lately there have been signs of a base forming around the 92-93 level for the dollar index. An aggressively dovish message from Powell this week could see this support tested initially, but we should also bear in mind that average inflation targeting without, for example, yield curve control, could create a much steeper yield curve (i.e. higher long end yields) in tandem with higher inflation expectations, which could support USD in the longer term. US 10 year yields have already start to move higher, rising to 0.7%.
European shares stutter after Wall Street’s all time high
US stocks closed at record highs but European stocks remain a lot more subdued, with the FTSE 100 struggling at the open today after suffering a sharp reversal in the latter part of the session yesterday. Bulls did try to wrestle control from bears in the first hour of trading, but it looks like it will be another volatile day and a lot will depend on how Wall Street performs in the first hour or two of the NY session. House speaker Nancy Pelosi said the Democrats could be willing to agree to a scaled-down stimulus package, which has helped soothe risk muscles. Asian shares were mixed and US futures are flat.
Whilst the S&P 500 notched record intra-day and closing highs, the FTSE 100 is tracking close to the lower end of the June range and is –20% YTD. Sterling’s strength has not helped but European equity markets just haven’t matched expectations. The DAX has done better but remains some way off its highs. While we focus on the broad market in the US, the fact is it has been driven largely by a rather narrow group of stocks and the rest of the market has not enjoyed the same bounce. Tech is up 50% for the last 12 months, whilst Energy is down 30 per cent.
The question is whether this is early cycle or the death throes of the last bull market. Either you read this as a sign that the market could go a lot higher as we enter a cyclical bull market with lots of cash sitting on the side lines still to pour into value, or you worry that this is a Fed-fuelled tech bubble with forward earnings multiples looking enormously stretched at around 25x on a forward basis. I would be concerned that volatility will increase as we head into the autumn with the election looming and there is at least a chance of a technical pullback for the S&P 500. And how much more stimulus can you throw at this? The Fed has killed the bond market and lifted the boats – but how much more can it do? If the market tests the Fed again, what is left in the tank?
For the FTSE 100, the near-term downtrend is starting to approach important support levels.
USD can’t catch bid
In FX trading, the US dollar was offered yesterday and was the chief driver of the market, sending the euro to its highest versus the greenback in more than two years. The break above 1.19 for EURUSD leaves bulls in control after two previous attempts failed. EURUSD eased back from these highs today but remains supported above 1.19 with bulls eyeing a recapture of the May 2018 swing high at 1.20.
GBPUSD was a little softer this morning after shooting clear of the 1.32 level yesterday to hit its best level since the election last December. The move clears important technical resistance of the long-term downtrend and opens a path back to 1.35, last year’s peak, with the golden cross (50-day SMA rising through the 200-day SMA) considered a bullish confirmation of the rally. Near term the higher-than-anticipated CPI inflation reading this morning has not been able to lift the pound, although it ought to help quell immediate speculation the Bank of England will resort to negative rates.
Meanwhile the pound remains exposed to significant headline risks this week. Brexit talks have not gotten off to the best start as the EU rejected British proposals for truckers’ access to the continent. I would anticipate that the longer this drags the more we see pressure come back on GBP. FOMC minutes tonight will be watched for any signs the Fed feels the need to lean even harder on rates. For now the dollar can’t seem to catch a bid with the dollar index now barely holding the 92 handle and the last line of defence before a return to the 80s sitting at 91.60 (the 78.6% retrace of the two-year uptrend) now firmly in view.
Oil prices slip ahead of OPEC+ meeting
Crude prices were a little lower this morning ahead of an OPEC+ meeting to review after touching a 5-month high yesterday on improving risk sentiment as US equities rose, whilst the softer dollar is offering ongoing support to commodity markets.
OPEC and allies are likely to stick with 7.7m bpd supply cut – what we don’t know is whether the demand side really picks up into the back end of the year. On that front a lot will depend on the containment and control of the virus in Europe – rising cases raises real risk that hamstrung governments simply revert to a wide lockdown and restrict movement again. Airlines and travel stocks will face a tough time.
Gold was softer after breaking back above $2k in yesterday’s volatile session. Near-term support appears to rest on the 23.6% retracement around $1980. Whilst bulls are still just about in control, their momentum is not what it was and we would prefer to see the next swing clear $2015 for the bullish trend to be fully reasserted. A further corrective move lower should still be considered a real possibility.
US EIA Crude Oil Inventories preview: Oil erases losses on broad inventory drawdown
Crude oil has erased yesterday’s losses and Brent is close to doing so as well after private oil inventories data yesterday showed a large draw.
WTI (SEP) has gained $0.40 (1%), although remains near the middle of its recent trading range at $42.14. Brent is $0.33 (0.7%) higher to trend just above $45.00. Both benchmarks had spiked to their second-highest levels since March yesterday in the wake of the latest data from the American Petroleum Institute.
Private data shows larger-than-expected oil, gasoline draws
API data released yesterday showed a drop in crude inventories of 4.4 million barrels during the week ending August 7th. Analysts had expected a drop of 2.875 million barrels.
The figures continue to point to strong demand recovery in the US, helping to counterbalance some of the downside pressure on crude as OPEC members begin scaling up production after cutting by record levels between May and July.
Further improving sentiment was a larger-than-expected draw from gasoline inventories. Stocks fell by 1.748 million barrels against expectations of a 674,000 decline.
US EIA Crude Oil Inventories forecasts
Forecasts for the US EIA Crude Oil Inventories report suggest a drop, but as we’ve seen previously both the direction and magnitude of the change often takes analysts by surprise. Predictions for the past four weeks’ worth of US EIA data have been way off the mark in terms of the size of the change, and wrong about the direction twice.
After the API data many traders will be expecting to see a similar decline in inventories when the EIA publishes its official figures.
As well as the latest inventories data, traders can also expect fundamental updates from today’s Monthly Oil Market Report published by OPEC, and tomorrow’s Oil Market Report from the International Energy Agency.