With a supply deficit of more than 2.5mn barrels a day through Q4, it is probable that Biden administration will not draw on the SPR so far ahead of the actual election date
Especially given the fact that SPR (Strategic Petroleum Reserve) are already running low. It seems more plausible that Joe Biden will concentrate the SPR ammunition around Q2-Q4 next year. This creates another supply risk in the short-run for the oil market Source: Andreas Steno
Is oil once again becoming a political commodity: Russia and Saudi Arabia are cutting oil production at the worst time for the Biden administration (hint: next year is an election year in the US)
Source: Bloomberg, HolgerZ
The S&P 500 earnings yield minus risk-free cash rate (3-month treasury bill) has dropped to its lowest level (-90 basis points) in 23 years
Source: BofA
One key development of the week (beyond brent hitting $90) has been stronger than expected macroeconomic data - e.g the ISM services (see data table below from Markets & Mayhem)
Indeed what we are seeing in the last ISM Services PMI reading may not be the best news for the inflation situation: 1) New orders growing faster 2) Employment growing faster (from being nearly flat m/m) 3) Prices rising faster And the market reaction - stocks pulling back - means that good macro news is bad news for the market again. Indeed, while a growing economy supports rising corporate profits (which is a positive), a too strong economy would imply a more hawkish FED than it is currently anticipated by the market.
Hard landing - Energy leads. Soft landing - energy lags. What will be the message from Mr Market?
Source chart: 3Fourteen, Warren Pies
Nearshoring / Friendshoring in action... For the 1st time since 2003, the US is importing more from Mexico than from China
Source: BofA, Bloomberg
Next FOMC rate hike probabilities:
No hike → 93% 25 bps hike → 7% Source: Game of Trades
Is oil going to $100?
U.S Crude inventories fell by WAY more than expected ( -6.3mm (-2.1mm expected) to their lowest since early December - and are well below their five-year average for this time of year as the summer driving season ends. Including the SPR (Strategic Petroleum Reserve), this is the lowest level of total crude inventories in America since 1985... Source: Bloomberg, www.zerohedge.com
