Crude is swayed by overnight data from China, Europe

As the US returns to work after a long weekend, it is under the influence of various overnight releases from Europe and Asia. Brent crude is rallying strongly after seeing downside yesterday, while WTI is still playing catch-up and selling off towards mid-forty dollardom.

At first blush a revision to Japanese GDP for Q2 was better than previously expected (-0.3% QoQ, -1.2% YoY), but it turns out this was due to swelling inventory rather than anything constructive. Meanwhile, further Chinese woes came in the form of its trade balance, as its trade surplus came in close to record highs as imports dropped by more than expected, down 13.8% YoY for August. Exports dropped by 5.5% YoY.

Chinese equities had another wild ride, but finished well in positive territory in the last hour as the government intervened top prop up the market once more. According to estimates, the Chinese government has spent $236 billion in recent months to shore up its ailing equity market.

China trade balance 2004
China Trade Balance, $ bln (source: investing.com)

Onto Europe, and the latest revision to the Q2 Eurozone GDP print saw a better-than-expected increase of 0.4% QoQ, 1.5% YoY. Further Euro-centric positivity came from German trade data, which reached a record high in absolute terms for both imports and exports as they increased month-on-month. After Nonfarm Friday, we get the usual dearth of data in the US this week.

Onto energy-specific stuff, and this week we see the latest monthly reports released by the EIA (Short Term Energy Outlook – tomorrow) and the IEA (Oil Market Report – Friday). The former will be scrutinized for insights into US-specific projections, while the latter will be examined more for OPEC adjustments; indications point to a drop in Iraqi production due to a pipeline disruption. We wait until next Monday to hear from OPEC themselves via their monthly oil market report.

There’s a few interesting tidbits out today; the Wall Street Journal runs with a piece on how ‘stripper’ wells could be having a significant impact on output. There are some 400,000 such wells in the US, which produce just a few barrels a day – ‘stripping’ the remaining oil out of aging wells. Total production for stripper wells is projected at ~11% of production, or 1 million barrels per day. It is estimated a half of all stripper wells could be shut down if prices fall below $40.

A similar tale is told for Canada, but is even closer to reality given lower Canadian heavy crude prices. When Canadian prices fell below $20 last month, nearly all the country’s oil sands and conventional heavy production were considered to be operating in the red.

As gasoline prices dropped to their lowest level in 11 years over the Labor Day weekend, behavioral changes are afoot. SUV sales are on the rise, and the interest in fuel efficiency is on the wane:

fuel efficiency

 

Nonetheless, the impact of lower gasoline prices on the US economy is, um, lumpy:

varied benefits of falling gasoline

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