WTI/RBOB Stumble After Mixed Inventory Data, 16th Straight Week Of Increased Crude Production

WTI/RBOB prices were relatively unchanged from last night’s API inventory print (despite some volatility from OEPC headlines) ahead of the DOE print, but that did not last long as Crude saw a much bigger than expected draw (-4.43mm vs -2mm exp) and gasoline a considerably smaller draw than API (-787k vs -3.18mm API) and the same with distillates. Lower 48 crude production rose for the 16th straight week and seemed to take the shine off the inventory data – sending WTI/RBOB prices lower.



  • Crude -1.5mm (-2mm exp)
  • Cushing -210k
  • Gasoline -3.15mm (-1.08mm exp)
  • Distillates -1.85mm


  • Crude -4.43mm (-2mm exp)
  • Cushing -741k
  • Gasoline -787k (-1.08mm exp)
  • Distillates -485k (-493k exp)

Crude’s 7th weekly draw in row was much bigger than expected, but Gasoline only saw amodest draw…


Bloomberg’s Mitchell Martin notes that gasoline stockpiles are more than 9% above the five-year average. Summer driving season will likely take on greater significance this year, but gasoline consumption may rise less than 1% from last year’s level. Bloated distillate inventories are being relieved by exports, but stockpiles remain 15% above the five-year average, even with demand from railroads and industrial users helping to boost consumption to a five-year high in April.

Bloomberg’s Laura Blewitt notes that we can thank Gulf Coast refiners for that massive crude draw. PADD 3 refinery crude runs rose to the highest on record in data going back to 1992.

This is the 16th straight week of increased crude production from The Lower 48, as output tracks the lagged surge in oil rig counts. Production rose from 8.795mm to 8.815mm last week, highest since Aug 2015

Javier Blas points out that the U.S. continues to import lots of crude from Saudi Arabia, despite the OPEC production cuts (creating a bit of mismatch between the rhetoric here in Vienna about the curbs and what refiners receive). Last week, U.S. refiners bought 1.371 million barrels a day from the kingdom, largely unchanged from the previous week (1.376 million). Shipments from Iraq fell significantly, but they were offset by a surge in Kuwaiti arrivals. All in all, Middle East crude appears to be plentiful in the U.S. Something OPEC will likely need to explain tomorrow at its official meeting.

Gasoline (big build) was higher heading into the DOE data, crude was lower as ovenight streength faded after OPEC’s Vienna meetings ended with no statement today. Bloomberg’s Laura Blewitt points out that summer driving season arrives this weekend. This year comes with a unique price trend: the typical 50-cent spring surge in gasoline prices hasn’t happened. The reaction to the DOE data was clear – WTI up, RBOB down…BUT that did not last as both are lower now on the lack of product demand.


Bloomberg notes that crude is on a nice bullish streak, not huge gains but steady daily ones. In the five days through Tuesday, WTI gained 41, 28, 98, 40 and 34 cents. The flip to July delivery also helped the front-month contract, pushing it to the highest settlement since April 18. Aggregate volume hasn’t been rising with the price, though. Both days this week were under 1 million trades after being over a million from May 2 to May 19 with the exception of May 12, when volume totaled 999,989.

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Sudan poised to become a nuclear atomic energy state

Sudan is set to sign a preliminary agreement with Russia that could make the East Africa nation a nuclear atomic energy state by the end of this year, the Minister of Electricity revealed yesterday. Speaking at a news conference after opening a workshop in Khartoum, Motaz Musa, who is also the minister of irrigation and water resources, stressed that Sudan would soon sign a memorandum of understanding with Russia to explore ways of using atomic energy to harness electricity. The minister said the memorandum would make it possible for a comprehensive agreement to be reached which would mean that a nuclear station could be established in Sudan by the end of 2017. “The workshop aims at cooperation in the field […]

Loonie Surges To 5 Week High After BOC Surprises With Hawkish Statement

While the Bank of Canada did not surprise with its interest rate decision, holding rates at 0.5% as expected, the market has read between the lines of the statement and concluded that it was substantially more optimistic than expected, with clear hawkish notes as a result of the following line: “The Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment.”

Additionally, the BOC has added a new line which now reads: “all things considered, Governing Council judges that the current degree of monetary stimulus is appropriate at present, and maintains the target for the overnight rate at 1/2 per cent” and replacing the previous conclusion which said there was “significant uncertainty on the outlook.”

And while the BOC hedged by saying “the uncertainties outlined in the April MPR continue to cloud the global and Canadian outlooks” the market is clearly more impressed by the hawkish readthru, sending the Loonie surging after the report.

Some other observations from the report:

  • On inflation: “The Bank’s three measures of core inflation remain below two per cent and wage growth is still subdued, consistent with ongoing excess capacity in the economy.”
  • On housing: “Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions. Macroprudential and other policy measures, while contributing to more sustainable debt profiles, have yet to have a substantial cooling effect on housing markets. Meanwhile, export growth remains subdued, as anticipated in the April MPR, in the face of ongoing competitiveness challenges. The Bank’s monitoring of the economic data suggests that very strong growth in the first quarter will be followed by some moderation in the second quarter.”

End result: the USDJPY has tumbled to 5 week lows.

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Gaddafi family deny support for ‘traitor’ Haftar

The family of late Libyan dictator Muamar Gaddafi have denied that they back renegade Field Marshal Khalifa Haftar against the internationally recognised government of Fayez Al-Sarraj, Al Jazeera reported today. The Times reported on Tuesday that Ahmed Gaddaf Al-Dam, cousin of the former dictator, had told the British newspaper that the Gaddafi family were supporting Haftar on the basis of a future power-sharing agreement, noting that Gaddafi’s widow might return to Libya should the situation became secure. “Haftar is working to rebuild the Libyan armed forces,” he reportedly told the British newspaper. In the eastern region of Libya, he has been combating extremism. He was approved and supported by the tribes and the parliament. Gaddaf Al-Dam was reported to have […]

Norway’s Disgruntled Oil Workers Settle On 2017 Wages

The great majority of oil workers in Norway, or 87 percent,, have agreed on wages for this year with the companies that employ them. The workers are represented by the two largest industry unions in the country, with a total headcount of 6,500. Another 13 percent, represented by a third union, will continue negotiations with the government under a mediation plan. Oil workers in Europe’s biggest crude oil producer went on strike last year over pay disagreements with their employers, amid a global cost-cutting drive in the oil industry. The…

$1bn US weapons may have ended up with Daesh

The US military lost track of $1 billion worth of arms bound for Iraq and Kuwait, according to an US Department of Defence audit obtained by Amnesty International. The government audit, from September 2016, reveals that the DoD “did not have accurate, up-to-date records on the quantity and location” of a vast amount of equipment pouring into Kuwait and Iraq to provision the Iraqi Army. This audit provides a worrying insight into the US Army’s flawed – and potentially dangerous – system for controlling millions of dollars’ worth of arms transfers to a hugely volatile region said Patrick Wilcken, Amnesty International’s arms control and human rights researcher. Commenting on the implications of the flaw, Wilcken said: “It makes for especially […]

Existing Home Sales Slump As Prices Soar To Record Highs

Following yesterday’s collapse in new home sales, NAR reports that existing home sales in April also disappointed – dropping 2.3% (and March revised lower). This drop happens as median home prices spiked 6.0% YoY to record highs as sales declines are blamed once again on a lack of supply (forget affordability?).

Highlights include:

  • Existing-home sales at 5.57m, vs est. of 5.65m
  • March at 5.7m; revised from 5.71m
  • Existing-home sales fell 2.3% after rising 4.2% prior month
  • 4.2 months supply in April vs. 3.8 in March
  • Inventory rose 7.2% to 1.93m homes
  • 1st-time buyers 34% of total sales; all cash 21%; investors 15%
  • Distressed sales 5% of total sales

Don’t be too surprised…

The median existing-home price for all housing types in April was $244,800, up 6.0 percent from April 2016 ($230,900). April’s price increase marks the 62nd straight month of year-over-year gains.

However, as has traditionaly been the case, the bulk of price increases has been toward the upper end:

Total housing inventory at the end of April climbed 7.2 percent to 1.93 million existing homes available for sale, but is still 9.0 percent lower than a year ago (2.12 million) and has fallen year-over-year for 23 consecutive months. Unsold inventory continues to rise and is at a 4.2-month supply at the current sales pace.

Lawrence Yun, NAR chief economist, says every major region except for the Midwest saw a retreat in existing sales in April.

“Last month’s dip in closings was somewhat expected given that there was such a strong sales increase in March at 4.2 percent, and new and existing inventory is not keeping up with the fast pace homes are coming off the market,” he said.


“Demand is easily outstripping supply in most of the country and it’s stymieing many prospective buyers from finding a home to purchase.”

As a reminder, the May University of Michigan Consumer Sentiment survey showed a six-year low among those who think it’s a good time to buy a house and a 12-year high among those who say it’s a good time to sell. Disparities of this breadth tend to coincide with break points and that’s just where we’ve landed in the cycle.

The beginning of May officially marked the advent of a buyers’ market, defined simply as sellers outnumbering buyers by a wide enough margin to trigger falling prices. Yes, it’s the moment buyers have been waiting for. It is also the moment private equity investors, those who’ve crowded out natural buyers, have been dreading.

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FISA Court Finds “Serious Fourth Amendment Issue” In Obama’s “Widespread” Illegal Searches Of American Citizens

A newly released court order from the Foreign Intelligence Surveillance Court (FISA) found that the National Security Agency, under former President Obama, routinely violated American privacy protections while scouring through overseas intercepts and failed to disclose the extent of the problems until the final days before Donald Trump was elected president last fall.  In describing the violations, the FISA court said the illegal searches conducted by the NSA under Obama were “widespread” and created a “very serious Fourth Amendment issue.”

These new discoveries come from a recently unsealed FISA court document dated April 26, 2017 and center around a hearing dated October 26, 2017, just days before the 2016 election, in which the FISA court apparently learned for the first time of “widespread” and illegal spying on American citizens by the NSA under the Obama administration.

“The October 26, 2016 Notice disclosed that an NSA Inspector General (IG) review…indicated that, with greater frequency than previously disclosed to the Court, NSA analysts had used U.S.-person identifiers to query the result of Internet “upstream” collection, even though NSA’s section 702 minimization procedures prohibited such queriesthis disclosure gave the Court substantial concern.”



The court order goes on to reveal that NSA analysts had been conducting illegal queries targeting American citizens “with much greater frequency than had previously been disclosed to the Court”…an issue which the court described as a “very serious Fourth Amendment issue.”

“Since 2011, NSA’s minimization procedures have prohibited use of U.S.-person identifiers to query the results of upstream Internet collection under Section 702.  The October 26, 2016 Notice informed the Court that NSA analysts had been conducting such queries in violation of that prohibition, with much greater frequency than had previously been disclosed to the Court.”


“At the October 26, 2016 hearing, the Court ascribed the government’s failure to disclose those IG and OCO reviews at the October 4, 2016 hearing to an institutional ‘lack of candor’ on NSA’s part and emphasized that ‘this is a very serious Fourth Amendment issue.'”



Of course, these discoveries and their timing, coming just before the 2016 election, are even more suspicious in light of the Obama administration’s efforts to ‘unmask’ intelligence on various Trump campaign officials shortly after the election.

As Circa noted, the American Civil Liberties Union said the newly disclosed violations are some of the most serious to ever be documented and strongly call into question the U.S. intelligence community’s ability to police itself and safeguard American’s privacy as guaranteed by the Constitution’s Fourth Amendment protections against unlawful search and seizure.

“I think what this emphasizes is the shocking lack of oversight of these programs,” said Neema Singh Guliani, the ACLU’s legislative counsel in Washington.


“You have these problems going on for years that only come to the attention of the court late in the game and then it takes additional years to change its practices.


“I think it does call into question all those defenses that we kept hearing, that we always have a robust oversight structure and we have culture of adherence to privacy standards,” she added. “And the headline now is they actually haven’t been in compliacne for years and the FISA court itself says in its opinion is that the NSA suffers from a culture of a lack of candor.”

Of course, we suspect that none of this will be reported by any of the mainstream media outlets who will undoubtedly overlook these very distburbing facts in their ongoing efforts to track down the latest anonymously-sourced ‘bombshell’ report about how Trump once sat across from a Russian boy at lunch in the 2nd grade.


The full FISA Court opinion can be read here:

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Crude oil trading close to unchanged after reaching a one-month high earlier. This was in response to a bullish inventory report from the API last night …The post Disclaimer appeared first on crude-oil.news.

For The First Time Ever, European Equities Yield More Than Junk Bonds

Last week, when looking at the the distortion and absurdity unleashed by the ECB’s asset purchase program upon European capital markets, we showed the unprecedented collapse in European junk bond yields as captured by the effective yield of the BofA/ML Euro High Yield Index, which is now trading just shy of all time lows, having dropped below 3% at the end of April, and printed at 2.79% on May 23, within bps of record lows…

… roughly 50 bps wider than where the the US 10Y is trading at this moment, and inside the 30Y US Treasury. Assuming a 1.9% European CPI (as of April), this means that the real rate of return on Europe’s junk yields is now 0.89%.  But we digress.

So why does European junk debt trade with seemingly no more risk than the world’s most risk-free security? Simple: expectations that the ECB will keep buying it, and so far it has. In fact, yesterday DB’s Jim Reid reported that according to “the latest ECB CSPP numbers were out yesterday and I was surprised to see the average daily corporate purchases at €401mn last week, notably above the average daily run rate of €365mn since the program started. So back in April and early May it looked like a broadly equal CSPP/PSPP split but last week’s numbers gives us the possibility that CSPP hasn’t been tapered as much after all.

So much for the ECB tapering… and incidentally as of May 19, the ECB owned €86.9 billion in European corporate bonds, up €2 billion from the prior week, and lifting the number of securities held by the central bank to 924. Putting it in context, as of this weekend, the ECB held 13.4% of the entire €649.12BN in European corporate bonds outstanding.

Which brings us to an interesting observation from BofA’s European credit analyst Barnaby Martin, who overnight writes that in Europe “Equities are the new “high” yield” as a result of the relentless collapse in junk bond yields. As the chart below shows, European equities are for the first time ever, offering higher yield than the HY Credit.

Here is the key section from Martin:

Despite long-term Bund yields moving higher in the past months, it seems that the front-end is still close to record levels. With front-end bunds at the lows, the problem of negative yielding assets has not really disappeared (chart 5). Notably more than 42% of the Euro-denominated fixed income market is still yielding below zero, hovering around that level since the start of the year.


Put that on top of (i) the short-duration the HY market exhibits (due to the high concentration of callable bonds) and (ii) the recent spread compression and one could see the HE00 index offering the lowest yield ever; below 2.8% (chart 6).

Martin does provide one possible explanation for the collapse in yields which is independent of the ECB’s meddling: “we note the impact of the change in the composition of the market as a reason behind the low “yield” in the high yield market: the quality of our HY index has improved as BBs now constitute ~75% of the entire HY universe. Our view on European high yield for this year is that it will remain attractive to its investor base despite the tight valuations given strong technicals. This will push spreads tighter from here, and potentially yields even lower.

In light of this, is BofA’s reco to short junk? Of course not: it would be sheer insanity to step in front of the relentless ECB juggernaut which continues to push yield chasers into the last remaining pockets of yield. Instead, he believes that even credit investors should start migrating to stocks – the last remaining bastion of yield in Europe. To wit:

Equity markets offer more attractive dividend yield, also exhibiting positive convexity on the earnings cycle…. While remaining constructive for high yield credit, as it offers better cushion to rising rates vs its IG counterpart, we think that European equities present a better upside opportunity. On a macro level investors could express this theme being long European stocks, while selling iBoxx € HY TRS as a RelVal trade, to reach “higher” yield.

Think about that for a second: the ECB has forced credit strategists to advise their credit-fund employed clients to buy stocks. Barnaby continues:

Debt investor’s upside is always capped. After all, how much more than par plus the coupon can one make when you hold a fixed income instrument to maturity? As a debt investor’s upside is capped, the asset is exhibiting negative convexity to the earnings cycle. On the contrary an equity investor is benefiting from the upside when the value of the company’s assets increases. There is no cap on this optionality, as the equity performance should reflect the performance of the assets and the earnings outlook of the company. Thus an equity investor is long convexity.

For that reason one would expect that the equity market should out-perform on a bull market, but under-perform on downturns. Put another way, equities should be the “beta play” over the course of the business cycle. As chart 3 shows, this is exactly what investors have experienced in the US market. The draw-downs were more severe in the equity market, but bull markets were more rewarding. This has been the case over the past three cycles during which we have sufficient data to observe. However, we have not experienced exactly the same in Europe over the last cycle (chart 4). Even though equities have outperformed in the late 90s and the pre-GFC cycles, the trend has been the opposite since 2009.

What can possibly go wrong with this trade? All else equal, nothing… just assume the ECB will remain the buyer of first and last resort for the indefinite future. When that changes, please try to be the first to sell as suddenly the “market” will go from nearly offerless to bidless in milliseconds.

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