The drivers of oil price are largely unchanged and rehearsed on a daily basis as the market tries in vain to find a breakout of this, albeit a lately higher grinding crude, constraining range. Those that were seeking guidance from the US inventory report were somewhat disappointed yesterday as even with a refinery run rate unchanged number of 80.6% from last week and stocks starting to slip under the 5-year average currently, Crude -5.826mb, Gasoline -2.914mb and Distillate -9.662 to the long-term mean, the implied demand numbers across the report are only negligibly different from last week, last year and the 5-year average, therefore the positive close on the day was inspired from elsewhere. Yes, the Distillate draw of 4.01mb should not be sniffed at, but the recovery in Heating Oil futures was arguably inspired by a rally in M1 Henry Hub Natural Gas that saw an all-time low of $1.522/Btu on Tuesday but rallied to $1.732/Btu settlement yesterday and thus easing pressure on its alternate burner.

The lack of ceasefire progress becomes a heightened issue at the end of the trading week. Just taking the last 3 weeks as an example, M1 Brent has rallied into every Friday for fear of something untoward happening over the weekend. With Houthi aggressors now promising to attack freight via submarine methods, whatever that means, oil players ensure that positioning is apposite for any shipping damage or indeed conflict spread. It is also impossible to deny that the furore in equities, sparked by the stellar performance of NVIDIA keeps investor mood positive. Such is the power of the stock market rally that the US Dollar has lost ground, even in an environment that has seen yields improve, FED members such as Christopher Waller putting in a hawkish turn and the pricing of a FED pivot being pushed back even further with a US rate cut in May now down to 30% on the FedWatch tool. A strong argument for oil bulls comes from the heavily backwardated time spreads in the futures crude contracts offering a ‘tight’ market narrative, but with such low run rates from oil processors, such assumptions need more explanation rather than just acceptance.

The US is unable to inspire Europe

Citizens that reside on the Eastern side of the Atlantic Pond, and corralled into Europe, gaze across the waves in envy at the performance of the US stock market indices. While the German DAX in the last year has decently performed, despite of the economy, by rising of 12%, in France the CAC has only achieved an 8% gain while in the UK the FTSE is embarrassingly down 3.5%. Oh, that us Europeans had been blessed with foresight or even the (artificial) intelligence to skew our pensions to the performance of the US bourses that have performed in ascending order as follows; the DOW is up 17%, S&P is up 25% and Nasdaq100 is up 45%. 
Yes, the outperformance can in some ways be laid at the altar of AI, in particular the tech-darling of NVIDIA which pre-opening yesterday showed an increase in profits of 220%, yet it takes more than just a myopic view of technology to achieve and build on a blooming fortitude. Driven by an anticipation of slower inflation, lower interest rates and a very resilient labour market, the feel-good attitude permeating the US economy seems likely to continue. According to The Conference Board in their January report, not only did the Present Situation Index increase to 161.3 against the previous 147.2, but the Expectation Index also improved to 83.8 from December’s 81.9 and as they are constituents of the Conference Board’s Consumer Confidence Index, it is little surprise that it registered a 2-year high.

Wednesday of this week saw the European Union Consumer Economic Sentiment Indicator flash of -15.8 which shows an improvement from the January reading of -16.2 but bear in mind that the measure runs from extreme lack of confidence at -100, neutrality at 0 and extreme confidence at 100, compared with the US picture of brightly coloured rainbows, Europe is a monochrome winter sky. Indeed, The European Commission states, in its Winter 2024 Economic Forecast, economic activity in 2023 is now estimated to have expanded by only 0.5% in both the EU and the euro area. The growth outlook for 2024 is revised down to 0.9% in the EU and 0.8% in the euro area. In 2025, economic activity is still expected to expand by 1.7% in the EU and 1.5% in the euro area, which is elaborated on but given caveats by Paolo Gentiloni, Commissioner for Economy, saying ‘in 2025, growth is set to firm and inflation to decline to close to the ECB’s 2% target. Geopolitical tensions, an ever more unstable climate and a number of crucial elections around the world this year are all factors increasing the uncertainty around this outlook.’

The economic difficulties faced by the EU in 2023 look to spill into 2024 and beyond then, and with the elections referred to by Gentiloni and the looming presence of strife, or the gearing up for it with Russia from Eastern European countries and frustration within the bloc on aide to Ukraine, there is little wonder that Europeans are disinclined to have a rosy outlook. Fiscal tightening is biting, pension reform is upon them, and a green transition is being forced down their necks all resulting in the prolonged abating of confidence and momentum. European Commission data shows that 8 of the 20 members saw contraction last year. Yesterday’s PMI data, although improved in some categories, remain firmly in contraction. HCOB PMIs in Manufacturing, Services and Composite order reads: France; 46.8, 48, and 47.7, Germany; 42.3, 48.2 and 46.1 with the EU; 46.1, 50 and 48.9 confirming that along with the rest of the planet, it is the service sector that drives economies at present.

The divergence between Services and Manufacturing PMIs is starkly presented by how Germany has suffered the most because of its post-WWII, post re-unification reliance on manufacturing. In a recent monthly report from the Bundesbank, it observed that there will be little change in outlook for the first 3-months of this year noting the 0.3% decline in the economy in 4Q23. Robert Habeck, Germany’s Economy Minister said the economy of 2024 will only expand by 0.2%. He is not alone, France Finance Minister, Bruno Le Maire cut spending by Eur10 billion and cut the 2024 GDP growth forecast from 1.4% to 1% which he announced in a television interview last Sunday. Europe then looks set for a prolonged period of dismal economic growth and performance as predictions of demand in any form will continue to be revised down for the old continent. The European envious gaze across the waves to the western side of the Atlantic is set to be a fixed stare, the gaze coming back from the US is one of relief that because of geography, its economy has not suffered the economic fallout and ravages of the Ukraine war.

Overnight Pricing

john.evans@pvm.co.uk

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