Oil market - ongoing story

[gerryg]

Hi forum members,

Going to share some digest on data from OPEC and other analytical agencies regarding oil market. Feel free to participate into discussion.

Here is some stuff for today:

OIL MARKET REVIEW: OVERSUPPLY MAY TURN TO DEFICIT?

The oil market has been facing a deficit of crude oil for the third quarter in a row, OPEC reported in its monthly review on Thursday.

According to the organization research, the demand for black gold outpaced supply by 0.9 million barrels per day in the fourth quarter of 2017. According to the cartel’s forecast, world oil consumption in the first quarter of this year will amount to 97.2 million barrels per day.

Decrease in demand compared to the fourth quarter of 2017 may result in a supply glut. For example, if the volume of production in OPEC does not change, then it can be equal to 0.6 million barrels per day.

Further reading: http://brokerarena.com/education/fundamental-analysis/oil-market-review-oversupply-may-turn-deficit/

 

[gerryg]

Narrowing debt spread and boom and bust cycles

US debt market experiences significant changes – an U-turn happens after decades of downward trend in Treasury yields. But why it can be dangerous?

Treasury yields has been declining for more than 30 years. The trajectory was strictly downward which briefly reversed only during mortgage crisis in 2006-2007 but then returned to global slump.

Fixed income market bears more significance than stock market because of higher sensitivity to risk. Therefore we can observe the change of core trends firstly on debt market and then on markets with higher yields.
Rising yields means a selloff of debt issued earlier as investors seek for higher yields. From the summer of 2016, Fed interest rate on 10-year Treasuries doubled from 1.3% to 2.6%. As the Federal Reserve took path of normalizing rates, bond price declines as the discounted value of future coupons decreases.

Read further http://brokerarena.com/education/fundamental-analysis/narrowing-debt-spread-boom-bust-cycles/

 

[gerryg]

After a short break Saudi Arabia continued to increase oil exports from the country.

According to JODI, the Middle East Kingdom supplied to the world market more than 7 million barrels per day in November, marking the growth of export for two consequent months.

Recall that in September last year, oil exports from Saudi Arabia fell to the lowest level since the spring of 2011, after it began to gradually recover. This was done to balance the oil market, pressing stockpiles below the five-year average. According to calculations by Citigroup, last year the size of crude oil stockpiles fell below the average level of the last five years, but OPEC official figures show they are still higher, that is, it is too early to weaken the grip.

It is increasingly difficult for OPEC pact members to resist the temptation to break commitment when prices are rising. However, the increase in exports from Saudi Arabia is most likely due to the seasonal factor and the high demand for energy.

Traditionally, in the first months of autumn, refineries in the Kingdom undergo maintenance work, which leads to a decline in exports. Given that in the fourth quarter of 2017 there was an undersupply of crude oil by 0.9 million barrels per day, the growth in supplies from the kingdom did not significantly affect the global supply.

Further reading: http://brokerarena.com/education/fu...w-saudi-arabia-exports-and-technical-picture/

 

[gerryg]

10YR-2YR Treasury spread – what it means for the market?

American stock markets are heading for a U-turn and 10YR-2YR Treasury spread poses a biggest threat.

The bond market has a much greater impact on the economy than the stock market, especially in the United States since US companies rely chiefly on debt financing rather than by selling stocks. Often a bad tendencies on it precedes the reversal of stock market indices, and their drop or rally leads to the decline/rebound of the GDP as it dampens the value of savings of Americans which is mostly held in equity securities.

In a normally working economy, the cost of short-term borrowing is cheaper than long-term debt rate because of risk-premium. However, when things get heated..

Further reading http://brokerarena.com/market-notes/10yr-2yr-treasury-spread-means-market/