It still appears as if we are unable to escape the flux that China’s industrial complex finds itself in. Trade data this morning makes for poor reading and seems as far from a China rebound from when zero-COVID ended. Imports year-on-year (July 2023) were expected to come in at –5%, they disappointed to the tune of –12.4%. Similarly, exports for the same period were estimated to be –12.5% but were –14.5%. However, for oil watchers the data is a little less ominous. Customs figures shows July oil imports fell 18.8% from June with Reuters equating that in barrels as 10.29 million per day against July’s 12.67 million per day. Where a little comfort can be found is that imports still remain 17% higher than a year ago of 8.79 million barrels per day. Vortexa in a note said that Chinese stockpiles now amounted to some 1.02 billion barrels of crude. It does seem evident that refiners are running with a free hand as refined fuel exports were up 55.8% as the very decent refiner margins are targeted. 

Cushioned as the oil data may be, the wider China data has ridden roughshod over market sentiment this morning as China property names and industry stocks are sold with the inevitable pressure on the Yuan giving the US Dollar a haven bid. The muted move in oil prices can be explained away by expectation of forthcoming data. The APIs and EIA/DOEs tomorrow will give pause for sellers particularly if another bout of draws in inventory occurs. Reuters publish a poll today showing at 0.2-million-barrel draw in Crude, the same for Distillate, a 0.2 million build for Gasoline with refinery runs increasing by 0.5%. TankWatch predicts a small build for Cushing Oklahoma. Another reason for investors across all suites to stay their hands is the Chinese inflation data tomorrow followed by the US on Thursday. The Chinese CPI year-on-year is forecast to come in at –0.4% with anything worse igniting stories of deflation. The CPI for the US year-on-year is estimated at 4.8% and anything over that will dent the confidence of ‘soft landing’ hopes and offer a platform from which hawkish voices can shout. 

Overlapping, concentric and oppositional influences continue to bring nervousness to our market and oil prices will have to lean again on the state of world inventories to keep its winning ways, which is why the US oil inventory data tonight and tomorrow are so very important.

GMT +1	Country	Today’s data	Expectation
13.30	US	Trade Balance	-$65b
15.00	US	Wholesale Inventories	-0.3%

 

Funds falter

The global asset management market reached $115.1 trillion in 2022 according to Price Waterhouse, a dip from the high of $115.8 trillion in 2021. It has been somewhat of a perfect storm for investment companies’ troubles in raising new capital for fund investment. Headline quantitive tightening by all but the BoJ from Central Banks, high inflation and high interest rates dog the current thinking of financial planning sales and assets under management (AuM) struggled to grow. In private equity the Financial Times reports at 35% fall in 2023 for first half compared with the same period in 2022. 

For years and after the financial crisis, markets have enjoyed unparalleled favourable investment backgrounds. A relatively calm geopolitical era (with only Brexit and a reality TV star becoming US President to interrupt the markets’ thinking), very low interest rates and what almost seemed limitless credit had allowed the market to grow in comfort developing a default buy attitude and that owning ‘stuff’ was equal to profit. Globalisation owned all the pomp with correlation in markets suffering few skews. Whether or nay this attitude is a direct result of the era of ‘too big to fail’ in which sovereign governments propped failing institutions and in turn their shareholders, is study for another time, but an oft-deployed government parachute does allow for the idea of a free hit. 

This notion of protectionist money was even more keenly felt during the market ravages of COVID-19. Global government exchequers opened their money boxes and poured largesse into the world’s systems. Designed to guard the vulnerable, aid businesses and add liquidity to the global trading arena, it also had a side-effect of saving the ‘buy default’ and arguably afforded rallies to unlikely beneficiaries such as Bitcoin which travelled from a March 2020 price of around $5200 to a November 2021 price of around $68,000. Brent’s circa $120, 23-month rally from April 2020 to March 2022 was not just about President Trump’s successful prompting of Saudi to refrain from giving a lesson to their peers who were cheating and their non-OPEC competitors targeting Saudi’s customers. It was about the amount of money flushing through the hands of investment managers and the inevitable flow into riskier assets such as commodities and with oil always holding a heavier loading in allocation within funds as seen in S&P/GSCI and BCOM.  

Without labouring the point, Russia invaded Ukraine and a pandemic stretched system choked on its own demand and the inflation cycle began. Of course, energy prices roared but countries adapted probably quicker than first envisaged. Germany’s switch from Russian natural gas to huge LNG term-deals is just an example, but this global adaptation came at the same time as Central Banks started to believe that they might have just overfed the beast. Again, avoiding old ground, higher interest rates are a barrier to any risk trading and so is a stopple in government cash. Bull markets need continued sustenance, take away the biggest source of financial food and positive trends in commodities become much more reliant on fundamental issues rather than monied ones.  

Has the government pinch led to lower AuM? Debatable, but it has been a curious coincidence. However, what is not deniable is how the oil market often in recent times lacked a follow-on bid after quite decent news. In April this year it only took 3-weeks for the market to erase the OPEC inspired gap higher. Latterly, Saudi voluntary cut gains have been muted. Yes, the market has rallied on seasonal product issues and with the wrong type of crude, in the wrong places, in the wrong type of temperatures and no doubt Saudi are playing their extra cards well in a receptive arena. But there is little reporting of institutional buying, roll periods are quiet and the pivot points of CTAs garner more interest as flat prices swings. The market has become incredibly short term, seasonal and commodity-like. The greatest currency is inventory levels not inflows from funds. 

If global asset management monies remain hemmed, then so will the drip down effect that oil feels. The flip side to this, is that oil is here on merit alone. We are not artificially held by fund inflows alone and in many ways makes for a healthier market. That does not mean it makes for a market that is more easily understandable. Frankly, our influences are way too many to list, but paradoxically if our market continues to enjoy success in trend, it is more likely to re-attract an institutional bid that appears (in opinion) to be missing.

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