Chaos in the Crude Oil Market

Winkelmann

Commodity

Energy

Palestinian-Israeli conflict

Summary:

Despite the escalating situation in the Middle East, the crude oil market reacted poorly and continued to trade in a range with a lack of clear direction.

Unlike the ups and downs of international crude oil prices in the past two years, the crude oil market in 2024 is somewhat volatile. As a typical representative of commodities, the logic of analyzing the crude oil market is simple and nothing but supply and demand. Superimposed on the impact of some geopolitical events and sudden climatic disasters, etc., a rare state of equilibrium has been reached in the current crude oil market due to the combination of a series of opposing factors, with less volatility in oil prices.

OPEC+ Faces Critical Challenges in Maintaining High Oil Prices

During the period since mid-2022, when most of the world's economies have been struggling to fight inflation, production from the U.S. and other non-OPEC producers has continued to increase, and demand for crude oil in the global market was initially expected to be sharply curtailed due to high-interest rates. Meanwhile, a series of production cuts have been implemented by OPEC+ countries advocating for oil production, led by Saudi Arabia, which has limited supply leading to a spike in crude oil prices.

In the latest news, due to the recent slight sluggishness in the crude oil market, three OPEC+ sources told Reuters that OPEC+ will consider extending the voluntary production cut agreement into the second quarter to provide additional support to the market, with two of the sources saying the cut could last until the end of the year.

However, now that OPEC+ is facing a hurdle of increasing production from non-OPEC countries, there are renewed fears that the oversupply will intensify. In particular, oil production has increased dramatically in the U.S., which produced at record levels last November and continues to solidify its position as the world's largest single oil producer. The U.S. became Europe's largest supplier of oil and LNG after sanctions on Russia and the Red Sea attack led to supply disruptions in the Middle East. This has indirectly hit OPEC+'s pricing power over the crude oil market.

In addition, even within OPEC+, there are also differences, and the balance of production cuts and production quotas has been the focus of debate within OPEC+. Angola announced its withdrawal from OPEC in December last year because it was dissatisfied with the production quota, and various oil-producing countries have difficulties in maintaining consistency and divergence between their economic interests and the overall interests of OPEC, as well as differences in the effectiveness of the implementation of production cuts. If more important oil-producing countries follow suit, it could further shake the unity within OPEC and its ability to regulate international oil prices.

Uncertain Outlook for Crude Oil Demand

Growth in key demand markets has lagged somewhat over the past year, with lower-than-expected economic growth in large Asian countries, after China announced the largest-ever cut in its benchmark lending rate to stimulate the economy, but the market did not react positively.

Although European and American countries have made great progress in reducing inflation, while their economies are still active and the demand for crude oil continues to grow, interest rates have been at a high level for a long time, which has a negative impact on the economic prospects. Germany, a major European country, has shown obvious signs of recession, and the prospect of oil demand is still not optimistic. Recently, the oil inventory data released by the American Petroleum Institute (API) has greatly exceeded expectations for three consecutive weeks, and the weekly oil inventory data of the Energy Information Administration (EIA) has also accumulated for three consecutive weeks, so the accumulation of crude oil will aggravate the concern about demand.

A recent report by the International Energy Agency (IEA) also lowered its oil demand growth forecast for 2024, nearly 1 million barrels per day (bpd) less than OPEC's outlook. The IEA estimates that global oil demand will grow by 1.22 million bpd this year, compared to OPEC's growth forecast of 2.25 million bpd. Still, oil prices have been supported by OPEC's production cuts and recent escalating geopolitical tensions in the Middle East.

Geopolitical Situation Intensifies, but Has Less Impact on Oil Prices

In fact, since the Russia-Ukraine war, the global geopolitical situation has become increasingly dire, with a succession of major and minor wars to say the least. The Palestinian-Israeli conflict has so far provided support to oil prices from the supply side, with the risk of supply chain tensions intensifying and freight rates rising amid Houthi attacks on Red Sea shipping. International shipping giant Maersk Shipping Group recently issued a statement saying that clients should be prepared for the disruption of Red Sea shipping to continue in the second half of the year and consider longer transportation times in their supply chain planning.

However, as in the past, with the prolonged conflict, the market will gradually become paralyzed, which is not surprising. Although the Middle East is one of the major oil-producing regions in the world, investors seem to be more worried about the contradiction between supply and demand, which is the fundamental problem that the market cares about, and this is also the main reason why crude oil has recently fallen into a tough consolidation.

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Owen Li

Economic

Bond

Much of the debate around U.S. public finances centers on the assumption that structurally higher interest rates will push debt servicing costs to intolerable levels, risking a fiscal catastrophe that can only be averted through severe austerity.

While borrowing costs and spending are justifiable sources of angst, this ignores the other side of the government's ledger. What if interest rates and bond yields stay 'higher for longer' partly because the economy is 'stronger for longer'?

More vibrant growth boosts tax revenue, but this often gets lost in the noise surrounding the trajectory for spending.

In its February forecasts the non-partisan Congressional Budget Office sketched out some pretty sobering figures. But it also estimated that the workforce will increase by 5.2 million people over the 2023-2034 period, mostly due to higher net immigration, which will boost economic output by $7 trillion and tax revenues by $1 trillion.

"Higher immigration could help boost GDP growth on a sustained basis, and this would help stabilize the debt-to-GDP ratio," said Marc Giannoni, chief U.S. economist at Barclays.

In a $28 trillion economy, the compound effect on tax revenues of annual economic or productivity growth exceeding consensus projections by one or two tenths of a percentage point can be significant.

An interactive table on the CBO's website, based on its long-term projections from early last year, shows just how significant.

All else equal, a 0.2 percentage point increase in productivity every year in the 2024-2033 decade would increase revenues by $673 billion and reduce the deficit by $400 billion, relative to the CBO's baseline projections.

The economy would be almost $1 trillion larger at the end of the decade at $40.5 trillion, and the debt-to-GDP ratio would be 3.4 percentage points lower at 114.8%, again relative to original baseline projections.

Bond Market Not Spooked

Economists note the importance to debt sustainability of the relationship between debt servicing interest costs and economic growth rates - also known as 'r minus g.'

The CBO's baseline projections are for annual nominal GDP growth and the 10-year Treasury yield to both average around 4% over most of the coming decade.

The average interest rate being paid on the $34 trillion of outstanding U.S. public debt is rising, and has just gone above 3%. However, that is still historically low, and well below recent and current nominal GDP growth rates of over 5%. 'Stronger for Longer' GDP Could Allay US Fiscal Fears_1

'Stronger for Longer' GDP Could Allay US Fiscal Fears_1

Despite a rising term premium, huge debt issuance, and expectations that the Fed could soon raise 'R-star,' its estimate of the long-term neutral rate of interest, U.S. bond yields are lower than they were in October.

Since the Fed first raised rates two years ago, Treasury market volatility has rarely been lower - partly because inflation has cooled and is now near target, but probably also in part due to a 'stronger for longer' economy.

Stronger long-term growth may be needed to keep a lid on the deficit and debt, absent large tax hikes or major changes to mandatory spending programs like Social Security.

"This leaves the rate of economic growth relative to interest rates as the crucial factor determining the path of the debt-to-GDP ratio over the next few decades," researchers at the San Francisco Fed wrote in February.

"New technological advances, such as artificial intelligence, could fuel a productivity-led boost to long-run economic growth" they added. 'Stronger for Longer' GDP Could Allay US Fiscal Fears_2

'Stronger for Longer' GDP Could Allay US Fiscal Fears_2

The 'Right' Kind of Growth

On a basic level, debt sustainability relies on the nominal rate of GDP growth exceeding the nominal rate of interest paid to service the federal debt, or the real GDP growth rate exceeding real borrowing costs.

The primary budget balance, which excludes interest payments, is also a key measure.

The CBO recently published its latest long-term projections and it's not hard to see why some of the numbers are cause for concern - persistently wide deficits, record interest payments as a share of GDP, and a steady increase in the debt-to-GDP ratio are all on the horizon.

Billionaire hedge fund manager Geoffrey Gundlach warned recently that interest rates of 6% over the next five years would mean "50% of tax receipts would have to go to interest expense ... which is completely possible."

The Fed policy rates doesn't directly influence long-term Treasury yields, but interest payments only appear to be going in one direction. Can growth help offset it, and more importantly, will it be the right kind of growth fueled by productivity gains or higher immigration?

"If nominal GDP is accelerating because real growth is growing, that's a really good situation, but if it's inflation is going up, you're shooting yourself in the foot," said Joe Kalish, chief global macro strategist at Ned Davis Research.

Source: Reuters

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Thomas

Economic

Thursday's Asia-Pacific economic calendar is one of the busiest of the year so far, with a raft of top-tier indicators from across the region certain to get local markets moving before U.S. inflation figures are out later in the day.

The global mood is more cautious, certainly relative to the recent Nvidia-fueled excitement - the MSCI Global and Asia ex-Japan indexes on Wednesday posted their steepest declines in two weeks, and the three major U.S. indexes also closed in the red as investors braced for U.S. inflation data on Thursday.

Retail sales data from Japan and Australia, and fourth-quarter GDP figures from India are the highlights that will give investors in Asia a steer on how the monetary policy path for these three key economies is shaping up.

Consumer price data from Japan and Australia this week gave investors plenty food for thought - Japanese inflation in January failed to moderate as much as expected, and Australian inflation failed to accelerate, as per the consensus forecast.

Will retail sales surprise as much as inflation did? Consumer spending in both countries is expected to accelerate in January from the month before, Reuters polls show. Spotlight Shines on Japanese, Australian Consumers_1

Spotlight Shines on Japanese, Australian Consumers_1

Spotlight Shines on Japanese, Australian Consumers_2

The Bank of Japan is preparing to exit years of ultra-loose policy and implement positive interest rates for the first time since 2016, while the Reserve Bank of Australia is preparing to cut rates.

The Australian dollar was one of the biggest losers among major currencies and RBA rate cut expectations were trimmed after that inflation surprise. Traders now see 40 basis points of easing this year, with the first cut not coming until September.

India's economic growth, meanwhile, is expected to have moderated to 6.6% year-on-year in the October to December quarter as robust government spending slowed and growth in the agriculture sector remained muted.

The range of forecasts in a Reuters poll of 63 economists was from 5.6% to 7.4%. If recent history is any indication, any surprises are likely to be on the upside - official GDP growth releases for the preceding three quarters broadly surpassed economists' predictions.

After a lull of a few weeks, Chinese markets are once again being led by news headlines on the country's troubled property sector.

Developer Country Garden said on Wednesday a liquidation petition has been filed against it for non-payment of a $205 million loan, clouding its debt revamp prospects and undermining Beijing's effort to restore confidence in the property sector.

Hong Kong announced major measures on Wednesday to bolster its flagging real estate market by scrapping all tightening measures for residential properties, and canceling all additional stamp duties on transactions imposed in the past decade.

Chinese stocks have enjoyed a decent revival in recent weeks, but that may be fading.

Source: Reuters

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Chandan Gupta

Traders' Opinions

Cryptocurrency

Bitcoin catapulted beyond the $63,000 mark during the Asian session, fueled by the buzz around spot BTC exchange-traded funds (ETFs). This accessibility surge enticed Wall Street institutions into the crypto space. The bullish momentum didn't stop there, as Bitcoin conquered both the $55,000 and $60,000 milestones earlier in the week, triggering close to $300 million in liquidations.

Amidst this crypto carnival, Glassnode, an on-chain market intelligence firm, unveiled a decline in BTC supply over the counter (OTC). This scarcity is pushing institutions to consider buying Bitcoin from public exchanges, potentially pushing the price beyond the $61,000 mark.

The driving force behind this upward trajectory remains capital inflows from institutions. The wealth management sector is keen on Bitcoin exposure through ETFs. Notably, BTC ETFs are now catching more attention than Gold, with Bloomberg's Eric Balchunas suggesting that Bitcoin ETFs could surpass Gold ETFs in assets under management (AUM) within the next two years.

The explosive week in Bitcoin's price action has seen a near-complete recovery in the Bitcoin realized cap, reaching $467.2 billion. This is merely 0.22% below the peak of $468.3 billion, indicating the resilience and recovery in the cryptocurrency market. Scarce Bitcoin OTC Supply Drives Purchases Off Exchanges as Demand Outstrips Available Market Stock_1

Scarce Bitcoin OTC Supply Drives Purchases Off Exchanges as Demand Outstrips Available Market Stock_1

In the midst of this fervor, @DaanCrypto, an online analyst on X, noted that Bitcoin has not seen a correction exceeding 5% for over a month, signaling bullish resolve among investors.

Looking ahead, the outlook for Bitcoin price appears positive, perched above the psychological $60,000 level with potential for further gains. The odds of reclaiming the November 10, 2021, peak of $69,000 seem likely, especially as the Bitcoin halving approaches.

For a shot at challenging the all-time high, Bitcoin needs to break and close above $63,329, the midline of the supply zone ranging from $62,905 to $65,664. Currently, Bitcoin is about 10% below its peak price.

From a technical standpoint, the indicators favor the upside, despite the elevated risk of correction due to overbought conditions signaled by the Relative Strength Index (RSI). The Spent Profit Output Ratio (SOPR) above 1 indicates that spent outputs' owners are in profit during transactions.

The northward trend of RSI signals increasing momentum, supported by the strong presence of bulls as indicated by the Moving Average Convergence Divergence (MACD) and Awesome Oscillator (AO) in positive territory, reinforcing the bullish thesis.

On the flip side, the RSI above 70 signifies that Bitcoin is already massively overbought, raising the risk of correction, especially with the SOPR positioned above the 1 threshold.

If the bears take control, Bitcoin might revisit the $55,000 milestone or extend down to the $50,000 threshold. In this dynamic crypto landscape, caution is advised for investors navigating the potential highs and lows of the Bitcoin market. Scarce Bitcoin OTC Supply Drives Purchases Off Exchanges as Demand Outstrips Available Market Stock_2

Scarce Bitcoin OTC Supply Drives Purchases Off Exchanges as Demand Outstrips Available Market Stock_2

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Chandan Gupta

Traders' Opinions

Economic

Stocks

The S&P 500 has been on a bit of a roller coaster, dipping slightly during Tuesday's midnight trading before making a turnaround. The market seems to be sending mixed signals, but if the current trend continues, long-term buyers may still find opportunities.

During Tuesday's early trading, the S&P 500 experienced a modest uptick, suggesting a potential shift in momentum towards even higher records. The buzz around the 5100 level is undeniable, capturing the attention of many. However, I believe this may be a short-lived fascination. Surpassing the 5,000 mark was the real achievement, and it hints at the possibility of further gains. After all, why not? It all boils down to a handful of influential stocks and the actions of central banks. It's worth noting that the S&P 500 could almost be nicknamed the S&P 7, given its reliance on a select few dominating stocks, creating a sort of "Magnificent Seven" effect that continues to shape market dynamics.

The significance of the 5,000 level cannot be overstated. Market memory and psychology suggest that any short-term pullbacks at this point are likely to attract buyers, with 5,000 serving as a critical support level. Despite concerns about the market being a bit stretched, every pullback sees eager traders ready to jump in. In this scenario, there seems to be little justification for adopting a bearish stance.

Looking at potential support levels, the 50-day EMA at 4,900 and 4,800 below the psychological 5,000 mark are crucial. As for targets, the 5,100 level looms as the next barrier, but there's a sense that we might surpass it. Speculatively, aiming for 5,200 is not out of the question, considering the market tends to move in increments of 100 points. In any case, the trend is firmly established in this area, making it impractical to fight against it. S&P 500 Consolidates Near Peaks, Establishing a Strong Foundation for Potential Upside Momentum_1

S&P 500 Consolidates Near Peaks, Establishing a Strong Foundation for Potential Upside Momentum_1

The S&P 500 is currently in a consolidation phase with low volatility, comfortably above the psychological 5,000 mark. This comes after reaching a record high of 5,111 in early February. The market is currently in a holding pattern, awaiting key economic indicators such as the second estimate of US Q4 GDP growth rate and Thursday’s PCE inflation data, along with speeches from FOMC members Bostic and Williams.

A potential fall through Tuesday’s low at 5,058 could engage mid-February highs at 5,049 to 5,044. The 2024 uptrend line at 4,996 provides support, maintaining overall upside pressure. However, the recent high at 5,111 might pose a challenge for future attempts at a new all-time high. If the market manages to overcome this hurdle, the 5,200 region could be the next target.

In summary, the S&P 500 is navigating through various economic factors and key levels, providing traders and investors with both challenges and opportunities. The market's resilience, coupled with support levels and potential upside targets, suggests that a cautiously optimistic approach may be prudent in the current scenario. S&P 500 Consolidates Near Peaks, Establishing a Strong Foundation for Potential Upside Momentum_2

S&P 500 Consolidates Near Peaks, Establishing a Strong Foundation for Potential Upside Momentum_2

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Samantha Luan

Economic

India is poised to witness an unparalleled increase in its ultra-high-net-worth individual (UHNWI) population by 2028, surpassing global and Asian averages for wealth accumulation, as per a recent report by Knight Frank LLP. This surge signifies not only India's robust economic trajectory but also places it at the forefront of wealth generation within the Asia-Pacific region.

Unprecedented Wealth Growth

According to Knight Frank's 2023 report, India's UHNWI population is projected to climb by 50.1%, from 13,263 in 2023 to 19,908 in 2028. This growth rate outstrips the global average of 28.1% and Asia's 38.3% over the same period. The report attributes this surge to India's dynamic economic environment and its ability to foster significant wealth creation. China, Turkey, and Malaysia are also expected to see considerable increases in their respective UHNWI populations, yet none as pronounced as India's.

The Mobility of Wealth

As wealth mobility intensifies globally, the report raises questions about whether the future growth of UHNWIs will remain concentrated within high-growth markets like India or begin to shift towards regions such as Europe, Australasia, or North America. This trend is underscored by findings from Henley & Partners, which indicate a significant number of Indian HNWIs migrating abroad. In 2022, over 200,000 Indians relinquished their citizenship, showcasing a notable movement of wealth and talent across borders.

Asia-Pacific's Wealth Creation Epicenter

The Knight Frank report underscores the Asia-Pacific region's emerging stature as the epicenter of global wealth creation, driven predominantly by India's economic dynamism. This shift not only highlights the region's growing influence on the world stage but also signals a potential realignment of global economic power balances over the forthcoming years. With India at the helm, the Asia-Pacific region is set to redefine the landscape of global wealth.

The significant growth in India's UHNWI population by 2028 underscores the country's burgeoning economic strength and its pivotal role in shaping global wealth trends. As India continues to navigate its path towards becoming an economic powerhouse, the implications for global wealth distribution and mobility will be profound, potentially heralding a new era of economic and social dynamics on the world stage.

Source：bnn

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Ukadike Micheal

Economic

Commodity

U.S. crude oil refinery inputs rose to an average of 14.7 million barrels per day in the week ending February 23, 2024, representing an increase of 100 thousand barrels per day from the previous week. Refineries operated at 81.5% of their operable capacity during this period. Gasoline production saw a boost, averaging 9.4 million barrels per day, while distillate fuel production also increased, reaching an average of 4.3 million barrels per day.

Meanwhile, U.S. crude oil imports averaged 6.4 million barrels per day in the reported week, showing a decrease of 269 thousand barrels per day compared to the prior week. Over the past four weeks, crude oil imports averaged around 6.6 million barrels per day, marking a 2.3% increase compared to the same period last year. Total motor gasoline imports, encompassing finished gasoline and gasoline blending components, averaged 384 thousand barrels per day, and distillate fuel imports averaged 112 thousand barrels per day.

Commercial crude oil inventories in the U.S., excluding those in the Strategic Petroleum Reserve, witnessed an increase of 4.2 million barrels from the previous week, reaching a total of 447.2 million barrels. This figure is approximately 1% below the five-year average for this time of year. Total motor gasoline inventories decreased by 2.8 million barrels from the previous week, standing about 2% below the five-year average. Finished gasoline inventories increased, while blending components inventories decreased. Distillate fuel inventories decreased by 0.5 million barrels, around 8% below the five-year average. Propane/propylene inventories decreased by 3.4 million barrels and are 1% above the five-year average. Overall, total commercial petroleum inventories decreased by 3.2 million barrels.

Looking at the broader perspective of the last four weeks, total products supplied averaged 19.5 million barrels per day, indicating a 3.2% decrease compared to the same period last year. Motor gasoline product supplied averaged 8.4 million barrels per day, down by 3.1%, while distillate fuel product supplied averaged 3.7 million barrels per day, down by 3.0%. However, jet fuel product supplied showed a 2.9% increase compared with the same four-week period last year.

From a technical standpoint, these inventory and production figures impact the energy market, influencing commodity prices and trading strategies. The increase in refinery inputs and production, coupled with fluctuations in crude oil imports, can contribute to market volatility. The inventories data, particularly the rise in crude oil inventories, may be analyzed by traders and investors to gauge the supply-demand dynamics and make informed decisions in the oil market.

The weekly energy report provides a snapshot of key metrics shaping the U.S. oil market. The data on refinery operations, production, imports, and inventories offer valuable insights into the current state of the energy sector. Market participants will likely closely monitor these indicators to anticipate potential price movements and navigate the ever-changing landscape of the global energy market.