Oil is crashing down but the EIA is bullish // Banking crisis and FED Reversal
Oil is crashing down but the EIA is bullish // Banking crisis and FED Reversal
The Commodity Report #95
Oil is crashing down but the EIA is bullish // Banking crisis and FED Reversal
Oil is crashing down but the EIA is bullish
Crude oil crashed during the week as the (regional) banking crisis in the US unfolded and the FED started to supply banks with lots of liquidity again.
Crude oil fell % during the week - moreover, the backwardation in oil futures normalizes again. We touched on the reason for lower oil prices in last week’s report.
Last week the EIA raised its estimate for global oil demand in 2023 by another 100,000 bpd. The reason for the optimism is the rebounding air traffic and pent-up Chinese demand for consumer goods according to the agency.
In its latest monthly oil market report, EIA sees global oil demand averaging 102.02 million bpd in 2023, 2 million bpd higher than in 2022.
The gains will accelerate over the year, however, the strongest rebound will follow in the 4th quarter according to the monthly report.
The report comes a day after OPEC kept its own 2023 global oil demand estimate largely unchanged at 101.90 million bpd, blaming weaknesses emerging in some western economies offsetting expected Chinese growth of 710,000 bpd.
Under the IEA's outlook, the market balance looks set to flip into a supply deficit during the second half of the year as global oil demand rebounds with stock draws of over 1 million bpd.
Banking Crisis and FED Reversal
Ending a hiking cycle with inflation that high and unemployment that low is a new experiment. But that's also exactly what market participants pricing in for 2023 – currently 100bps rate cuts till year-end in the US.
As the banking crisis unfolds and people argue for an end to the hawkish FED stance - the market seems to forget about the persistence of inflation. 1970s all over again.
These are just some lines on a chart, but I wanted to mention this. A bear market can be a very slow process. But remember the 2008 analogy. The KRE ETF showed a significant divergence from the broad stock market for over 6 months – until the market collapsed.
Moreover, US treasuries remain attractive as economic momentum in the states continues to slow.
The problem in the US also seems to be that the FED is willing to let the regional banks hang because they’re trying to shift the balance sheet weakness towards the larger banks. This snippet from finance minister Yellen makes this very clear.
What I don’t like is that Barrons favored with their latest cover story to buy large banks. Perhaps there is after all still more trouble ahead for the sector…
Due to the latest market reaction, there won’t be a podcast edition of Intermarkets this week.
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This week look out for the following:
US Existing Home Sales on Tuesday after last week’s promising housing data
FOMC Meeting on Wednesday - all eyes will be on this one
New Home Sales on Thursday
Flash Manufacturing and Service PMI as well as Durable Goods Orders on Friday
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Till next Monday, Lukas
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