GDPNow model lowers forecast… Atlanta Fed

by Jim Colburn • Monday, March 28, 2016

Here is today’s updated GDP forecast from the Atlanta Federal Reserve Bank:

“The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.6 percent on March 28, down from 1.4 percent on March 24. After this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis, the forecast for first-quarter real consumer spending growth fell from 2.5 percent to 1.8 percent. The forecast for the contribution of net exports to first-quarter real GDP growth declined from –0.26 percentage points to –0.52 percentage points following this morning’s advance report on international trade in goods from the U.S. Census Bureau.

The next GDPNow update is Friday, April 1. Please see the “Release Dates” tab below for a full list of upcoming releases””

gdpnow-forecast-evolution

Here is the link:  https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1

 

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Tim Guy on Oil, Inflation Expectations, and Credibility..

by Jim Colburn • Monday, March 28, 2016

Tim Guy questions the conclusion from Obstfeld et. al. (in an IMF post here https://blog-imfdirect.imf.org/2016/03/24/oil-prices-and-the-global-economy-its-complicated/) that the weak macro response to lower oil prices is due to a rise in real interest rates (lower oil prices reduce inflation expectations and policy rates are already close to zero, real rates go up)… Here is what I like from Guy:

“The trouble with that is that while oil is a nonstationary process – it is not mean reverting, nor is there reason to believe it should be a mean reverting series. Inflation expectations, however, should be a mean reverting series.

Or more specifically, it should be mean reverting if the central bank is credibly committed to their inflation target. If the central bank is credible, then we anticipate that policymakers will respond with policy that offsets inflation shocks to maintain their inflation target. Hence, inflation expectations should revert to that target and we would expect the series to be stationary.”

His bottom line:

Be wary of claims that oil prices are influencing inflation expectations; the recent correlation is likely spurious. Inflation expectations look to be following a mean reverting process, indicating that the Federal Reserve’s has credibly committed to their inflation target. We should expect policymakers will maintain such credibility if they continue to react to inflation shocks with offsetting policy.”

Read the whole thing here:

http://economistsview.typepad.com/timduy/2016/03/oil-inflation-expectations-and-credibility.html

 

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Investment Biases… NYTimes

by Jim Colburn • Sunday, March 27, 2016

The NYTimes article, “Why We Think We Are Better Investors Than We Are” (http://www.nytimes.com/2016/03/27/your-money/why-we-think-were-better-investors-than-we-are.html?_r=0) suggests that the many biases we carry around work against us in investing… I say, speak for yourself! (which, of course, indicates some overconfidence bias)…

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Product Exports Continue to Increase, EIA

by Jim Colburn • Friday, March 25, 2016

The EIA reports:

“Total U.S. petroleum product exports continued to increase in 2015, up 467,000 barrels per day (b/d) from 2014 to 4.3 million b/d, driven by increased exports of distillate fuel, motor gasoline, and propane. Mexico and countries in Central and South America continue to be major recipients of U.S. petroleum product exports.”

Here is the breakout:

image

Charts showing export growth by destination for gasoline, distillate and propane are here:

http://www.eia.gov/todayinenergy/detail.cfm?id=25532

 

 

 

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DOT, US Vehicle miles…

by Jim Colburn • Friday, March 25, 2016

DOT, US vehicle miles via Calculated Risk:  (http://www.calculatedriskblog.com/2016/03/dot-vehicle-miles-driven-increased-20.html)

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Russian oil economics… NYTimes

by Jim Colburn • Friday, March 25, 2016

Invest or consume?  This very good NYTimes article discusses the search for government revenue in Russia vs. long term oil production: http://www.nytimes.com/2016/03/24/world/europe/russia-light-on-cash-weighs-risks-of-a-heavy-tax-on-oil-giants.html

“Things have become so tight, insiders say, that the Kremlin is considering cracking open the one piggy bank that was always considered sacrosanct, one that carries long-term consequences for the Russian economy: taxing the funds that oil companies need to invest to ensure future oil production.”

Expecting a peak in production next year:

““The situation is very serious,” Mikhail I. Krutikhin, an energy analyst at the consultancy RusEnergy, said in a telephone interview. He estimates that Russia’s oil production, now at a post-Soviet record high of 10.8 million barrels a day, will peak at some point next year and begin a long-term decline.

The only question is the slant of this line,” he said. “The oil companies are not investing at all in exploration of new deposits because profits on these projects will only come in 10 years. Nobody will invest in these projects.””

 

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Market Notes…

by Jim Colburn • Thursday, March 24, 2016


Option volume was light yesterday with about 106,000 contracts trading (Jan and Feb averaged 217,926)… Implied volatility did not jump much, with May settling around 42%…  Only one option traded over 10,000 times… June 25 puts, settling at $.08, traded 11,700 times…

However, WTI spread options were active with around 50,000 trading, all but about 5,000 were puts… 4Q16 -75/-100 put spreads traded 3,000 times, settling at 3 cents… And some put butterflies traded in the same quarter: -75/-100/-125, 2,000/4,000/2,000 times… These trades might indicate that traders are looking for weakness in 4Q16 structure going forward… Recall an earlier post where a spread option trade was initiated to profit in a backwardated market in 2017…

Yesterday’s EIA report was not all bearish:

Domestic production was estimated down 30,000 for the week, to 9,038…

Cushing stocks declined by 1.3, to 66.2 million…

Gasoline demand is scorching hot at 7% over last year (4 week average)… (nicer weather, lower heating costs, more people working, etc…)

Here are gasoline stocks from the EIA:

image

But, here are crude stocks:

image

 

 

 

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What Tracks Commodity Prices… NY Fed

by Jim Colburn • Tuesday, March 22, 2016

From the NY Fed’s Liberty Street Economics:  (http://libertystreeteconomics.newyorkfed.org/2016/03/what-tracks-commodity-prices.html#.VvHyn_D3arW)

“A simple regression shows that both global growth and the dollar track commodity prices, and in this framework, it is the rise of the dollar that captures last year’s drop in commodity prices. Thus a forecast of stable global growth and a relatively unchanged dollar suggests little change in commodity prices in 2016.”

Here are commodities vs. GDP:

image

And here, the regression with GDP and the dollar:

image

Of course, most traders are well aware that “correlations work well until they don’t” and “when the stuff hits the fan, all correlations go to one”….

 

 

 

 

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Genscape: Iran’s oil export growth in line with Iranian forecasts, FuelFix

by Jim Colburn • Tuesday, March 22, 2016

FuelFix reports that Genscape differs on recent assessments of Iranian oil exports:

“Genscape’s assessment comes a few weeks after data from OPEC and the International Energy Agency showed Iran produced an additional 250,000 to 310,000 barrels a day in January and February, underwhelming oil markets that had expected about twice that amount.

Genscape, which tracks the movements of oil vessels, estimates Iran’s oil exports climbed by 480,000 barrels a day in those two months, in line with Iran’s forecast that it could boost overseas sales by half a million barrels a day quickly after western powers lifted oil-export sanctions, which were removed in mid-January.”

But more growth going forward could be thwarted by an oversupplied market:

“That may not necessarily reflect any difficulties with their output,” said Neil Atkinson, head of the oil market division at IEA. “Marketing extra crude or condensate is easier said than done in a glutted market, especially in a market where the return of Iran was fairly widely anticipated. It didn’t come like a bolt from the blue.”

Here is the link:  http://fuelfix.com/blog/2016/03/21/genscape-irans-oil-export-growth-in-line-with-iranian-forecasts/

 

 

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ADD VENEZUELA TENDER AS FACTOR IN SPREAD STRENGTH

by Andrew Lebow • Monday, March 21, 2016

Reuters reports that the PDVSA awarded an 8 million barrel tender for light sweet crude to BP and China Oil:https://au.news.yahoo.com/world/a/31139773/bp-china-oil-said-to-have-won-pdvsas-crude-tender-platts/    PDVSA, Venezuela’s state oil company , was forced to double the size of their purchases of light sweet crude (to be used as a diluent for their heavy, sour crude production). PDVSA has had  continuing trouble producing the light sweets, hence the size of this tender.  Some detail from the Reuters piece follows:      “China Oil, a unit of state-run China National Petroleum Corporation (CNPC), must deliver 2.7 million barrels of U.S. WTI crude in April at PDVSA’s terminal in Curacao at a price of NYMEX WTI plus $1.58 per barrel, according to a Platts report published earlier on Friday.”

“For its part, BP must discharge 2.7 million barrels of WTI in April at a price of $2.39 per barrel over NYMEX WTI, and 2.7 million barrels of Nigeria’s Qua Iboe crude in May-June at NYMEX futures plus $2.00 per barrel.”

Assuming the April dates are accurate for the WTI piece of the tender(we are not sure of the logistics on that one nor of the exact crude specs),  it would mean 5.4 million barrels of light domestic sweet would be exported from the US Gulf to Venezuelan ports for April (or in all probability into May). We would also assume that the buy hedges had to be placed in the front months of WTI and along with the producer selling into the back months was a key factor in the tightening of the curve. As these hedges are lifted and producer selling abates somewhat one would expect these spreads to pullback and perhaps pullback sharply. The extent of the WTI spread rally can be seen very clearly in the May/December spread chart below courtesy of Bar Chart. This seven month spread rallied from -610 on February 9th to -281 close on Friday. Significantly the spread went vertical last week rallying almost 1.00 dollar per barrel during the week. Clearly there are plenty of cross currents in these spread values, but this tender we believe was one of them.

Screen Shot 2016-03-21 at 11.31.17 AM
May/Dec WTI

 

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