Engine of global demand picking up steam

This week's energy outlook

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Oil prices are starting another trading session in positive territory on strong crude import data out of China along with another distillate fuel inventory decline reported in last night’s API inventory report coupled with a much larger than expected draw in Cushing crude oil stocks. Also the Bank Of England raised their growth forecast for the UK and will continue with a low interest rate policy going forward. The BOE said it expects the U.K. economy to expand 3.4% in 2014 versus the 2.8% growth it predicted in November. So in the last twenty four hours most of the macroeconomic data was supportive as was the API oil inventory report with the more widely followed EIA inventory report hitting the media airwaves at 10:30 AM.

Yesterday the new US Fed Chairperson testified before Congress for the first time and basically reassured Congress as well as the markets that she remains very much in sync with the previous Chairman… Ben Bernanke. She indicated that low interest rates will prevail for an extended period of time and they will continue to reduce their massive QE 3 bond buying program in measured steps as long as the economy supports such a move. Basically nothing new but reassuring for risk asset market participants as her testimony resulted in a strong rally on Wall Street as well as in most risk asset markets.

Overnight the data out of China came in better than expected suggesting that the main economic growth engine of the world may be slowly starting to pick up steam once again. China’s exports in January increased by 10.6 percent compared to last year and above the rate in December. The data surprised many as it normally declines during the Lunar New Year raising some concern over the validity of the report. But for the moment it is acting as a positive for the global risk asset markets.

On the commodity front China’s imports of most major industrial commodities increased to record high levels in January also suggesting that China’s economic growth rate may be starting to increase. Crude oil imports hit a record 6.66 million bpd, up 12 percent from a year ago and 5 percent from last month. It is not clear whether the increase in crude oil imports were only related to an increase in activity or partially due to storage building. But like the export date it was viewed as mildly supportive for the oil complex.

Yesterday the EIA released their latest Short Term Energy Outlook Report (STEO). OPEC released their report later this morning while the IEA report is due out tomorrow. Following are some of the main highlights related to the oil complex.

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