BlackMask Breaking News

Oil prices dipped on Tuesday after the U.S. government said it would release more crude from its Strategic Petroleum Reserve, while traders look out for inflation data for further queues. Brent crude futures fell 90 cents, or 1%, to $85.71 per barrel by 1320 GMT, while U.S. crude futures fell $1.16, or 1.5%, to $78.98 per barrel. Both benchmarks are on track for their biggest daily percentage drop since Feb. 3. The U.S. Department of Energy (DOE) said it would sell 26 million barrels of oil from the SPR, which is already at its lowest level since 1983. The DOE had considered cancelling the fiscal year 2023 sale after U.S. President Joe Biden’s administration last year sold a record 180 million barrels from the reserve. But that would have required Congress to act to change the mandate. Supply concerns also eased after the Energy Information Administration said it expected record March production  from the seven biggest U.S. shale basins. NN: Help me with the math here. Russia is cutting 500 million barrels per day in crude sales. Biden show him he is no slosh and orders a release of 29 million barrels from the strategic reserves. Which means it only covers 60 days of the Russian cut… Then what? Biden releases more oil. Well thats a idea but their is a little problem here. They are running out of recoverable oil in the strategic stash, AND Biden has announced he wants to refill the strategic supply… Yes and he wants to do all that at $70 oil….. So if he wants to refill it why is he emptying it?

US government bond investors pushed two-year yields above 10-year yields by the widest margin since the early 1980s, a sign of flagging confidence in the economy’s ability to withstand additional Federal Reserve interest-rate hikes. The yield on the shorter-dated Treasury at one point exceeded the longer-dated note’s by as much as 86 basis points. The two-year rate was 4.10% on Feb. 2, before stronger-than-expected January employment data sparked a reassessment of how much higher the Fed’s policy rate might need to go to stifle inflation. The two-year rose as much as eight basis points and exceeded 4.5% for the first time since Nov. 30. The 10-year yield climbed seven basis points to 3.68% following weak demand for a 30-year bond auction.Ten-year yields lower than two-year yields — the status quo since July — signify expectations that elevated policy rates will take an economic toll. A portion of the latest curve shift is attributable to the debut via an auction on Wednesday of a new 10-year Treasury note that trades at a yield slightly lower than the previous one, and thus at a wider negative spread to the current two-year. “The trend has been a flatter curve and more inversion since the Fed started tightening,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. “There’s nothing, when looking at the charts, that says we can’t go further with the inversion.” Cases of shorter-term rates trading higher than longer-term ones are called curve inversions. They typically arise when central banks are in the process of raising policy rates, a maneuver that pushes up the short-term yields while weighing on longer-term yields by damping expectations for inflation and growth. In the US, they have a track record of preceding economic downturns by 12 to 18 months. For the two- to 10-year spread, a one-percentage-point gap is in reach following strong demand for Wednesday’s auction, rates strategists at BMO Capital Markets said. Investors bought nearly 95% of the auction, a record share since at least 2003, according to available data. Thursday’s 30-year bond auction didn’t measure up. The yield was higher than anticipated, and investors took the smallest share in nearly a year. Consumer price data for January  could be decisive for the curve, Faranello said. NN: The yield curve inversion—the bond market’s longtime recession indicator—just notched another record. The yield on the 10-year Treasury dropped to 1.32 percentage points below the three-month bill yield on Thursday. It had never been more than a percentage point lower before this year,  according to Federal Reserve data back to 1982. This is a warning sigh of a recession that should not be ignore.

Today’s inflation report could mark a turning point in the equity market’s expectations for inflation and interest rates, says Kramer of Mott Capital Management

The stock market’s start-of-year rally is poised to fizzle if a highly-anticipated U.S. inflation report on Tuesday dashes hopes for a quicker retreat in the cost of living in America, warned market analysts.  The January CPI reading from the Bureau of Labor Statistics, which tracks changes in the prices paid by consumers for goods and services, is expected to show a 6.2% rise from a year earlier, slowing from a 6.5% year-over-year rise seen in the previous month, according to a survey of economists by Dow Jones. The core price measure that strips out volatile food and fuel costs, is expected to rise 0.4% from December, or 5.5% year over year.  “Any core reading under 5.5% would likely be a short-term upward catalyst for stocks, and any reading above 5.5% would likely be viewed negatively by the markets over the very short-term,” said George Ball, chairman of Sanders Morris Harris. The Federal Reserve Bank of Cleveland’s Inflation Nowcast is predicting a hotter-than-consensus CPI report. As of Monday, the Cleveland Fed’s model shows headline CPI to rise 0.65% month over month, or 6.5% on a yearly basis. For core CPI, the tracker estimates an 0.46% monthly increase and a 5.6% year over year advance. A hotter-than-expected inflation reading on Tuesday could mark a turning point in the equity market’s expectations for inflation and interest rates, with “far-reaching implications,” said Michael J. Kramer, founder of Mott Capital Management. Kramer thinks equity market have been in a “fantasy land” and that investors don’t appear to be “greatly concerned” about the coming CPI report, despite warnings from various parts of the markets. “It seems that despite the expected increase in inflation from analysts and the warnings from the inflation swaps, options, and bond market about a potential trend of higher-than-previously-expected inflation in the future, the equity market is still oblivious,” said Kramer in a Sunday note. “If CPI does come in hotter than expected, the equity market may find itself on the wrong side of the trend again, just as it has several times over the past 12 months.” NN: Here we go again.. we spin the wheel and see where the little silver ball lands.

Traders wagering this week on the Federal Reserve lifting its benchmark interest rate to 6% are still aiming way too low, according to Dominique Dwor-Frecaut. Dwor-Frecaut, a senior market strategist at the research firm Macro Hive, says the Fed will have to boost the federal funds rate to about 8% to win its battle to bring inflation fully under control. That’s based on her analysis using a Taylor Rule model with data stretching back to 1970. She’s not fazed by the fact that her call is still very much an outlier. She first made this prediction not long after the Fed started its tightening cycle in March 2022. For traders, she warns that two-year Treasury yields are headed well above 6%, and the yield curve will become even more inverted than it is now.

“I’m even more confident about my 8% call after the nonfarm payrolls report,” Dwor-Frecaut, who previously worked in the New York Fed’s markets group, said in a telephone interview, referring to surprisingly-strong employment data published on Feb. 3. “The funds rate has to go much higher than is now predicted. Policy is still very easy.” While Dwor-Frecaut may be in a minority on Wall Street, others have floated similar ideas. Former Fed Presidents Jeffrey Lacker and Charles Plosser wrote in a recent Wall Street Journal opinion piece that, if inflation stays where it is now, typical policy rules would recommend a rate between 6.5% and 8% by the end of the year. NN: I am now moving my Fed Funds rate increase prediction to 8% as a result of the most recent jobs report and the increase in energy prices…..

• March oil production to be cut by 500,000 barrels a day
• Deputy PM Novak says Russia won’t adhere to Western price caps

China’s state-owned oil majors have stepped up Russian imports in a sign that Beijing is ready to give the go-ahead for more purchases of the country’s crude, according to industry consultants Energy Aspects. PetroChina Co. and CNOOC Ltd. recently resumed imports of waterborne Russian oil, with at least three supertankers of Urals-grade crude signaling China as a destination, EA analysts wrote in a note, without saying where they got the information. China Petroleum & Chemical Corp., or Sinopec, may also increase its intake of the flagship Urals in the coming months, the analysts said. Chinese state refiners have kept a low profile when it comes to Russian purchases, and have been waiting on the sidelines to increase imports of grades such as Urals due to the lack of clear instructions from Beijing, according to EA’s Feb. 8 note. Now, the Chinese government is ready to allow more majors to procure Russian crude loaded in Europe, the analysts wrote. Separately, private refiners known as teapots have continued to buy Russia’s ESPO and Sokol grades after a short hiatus in early December to resolve issues stemming from banking and insurance after the Group of Seven price cap. China’s daily oil imports from Russia could increase by as much as 500,000 barrels this year to about 2.2 million barrels. That could rise to 2.5 million barrels if Beijing decides to take more Urals to refill its commercial or strategic petroleum reserves. NN: China is on a roll. They are not sleeping like US politicians. As we speak they are putting out tenders to refill their strategic oil reserves. WHY? Because they know prices right now are the lowest they are going to be.

Sinopec Among China’s Oil Giants Seeking More Russian Imports

China’s state-owned oil refining giants are speeding up purchases of Russian crude, citing the allure of cheap cargoes from the OPEC+ producer as demand recovered after Covid Zero was ditched. China Petroleum & Chemical Corp., or Sinopec, as well as PetroChina Co. and CNOOC Ltd. have started and will continue to ramp up their procurement of Russian grades in the coming months, said people with knowledge of the matter, who asked not to be identified as the information is private. Shipments purchased include flagship Urals, which ships from Russia’s distant western ports, as well as ESPO, which loads from pacific terminals. This marks a significant shift in the attitude of so-called Chinese oil majors toward Moscow, opening the flood gates for Russian crude and fuels to infiltrate more parts of Asia’s no. 1 refining nation. China and India have been the top two buyers of Russian crude since the European Union slapped an initial round of sanctions on Russia over the war in Ukraine. Chinese state-owned refiners have erred on the side of caution since then, while private refiners doubled down on cheap oil from the OPEC+ producer. NN: I told you so. China ain’t fucking around here. After all they are the king of the South…

China’s oil market is making a comeback after a torrid year, driven by rising consumption at home and abroad that could help lift global prices and deliver a big payoff for its embattled refining sector.  The stars are aligning after the government’s abrupt end to growth-sapping Covid Zero restrictions was followed by a burst of travel during the Lunar New Year break. At the same time, the war in Ukraine is lifting overseas demand for oil products, with Chinese firms poised to benefit from Beijing’s generosity with export quotas. A rapid economic recovery as the world’s biggest crude importer finally puts the virus behind it will have a pronounced impact on prices. The most bullish Wall Street forecasts call for Brent futures to top $100 a barrel for the first time in nearly half a year as Beijing reopens for business. “China’s reopening certainly seems to be bolstering demand for crude,” said Michal Meidan, a director at the Oxford Institute for Energy Studies in the UK. “Both domestic and export margins are looking strong.” It’s a big shift from 2022, when demand at home cratered and imports fell because of travel curbs and citywide lockdowns. That hit the refining units of state titans like Sinopec and PetroChina Co., which turn crude into products like diesel and jet fuel, undercutting profits that had climbed to record levels after Russia’s invasion caused oil prices to spike. China’s oil majors are now set for a bumper year as profits swell from both drilling and processing. They could be good bets for equity investors, not least because the companies have typically traded at a big discount to their US and European peers, said Neil Beveridge, senior oil analyst at Sanford C. Bernstein. Aany boost to oil prices from China’s reopening risks stoking global inflation just as central banks are starting to get it under control, which could spark another round of volatility in financial markets. Over the whole year, oil processing will rise to a record 14.4 million barrels a day, the International Energy Agency predicted last month. That compares with 13.6 million barrels over 2022. Energy Aspects Ltd. forecasts daily refining volumes in the first half to climb as high as 14.5 million barrels. The rebound in activity is being driven by both domestic and overseas factors, the company executives said, declining to be named because they aren’t authorized to speak publicly. Easier travel around the country will mean more demand for fuels, while international sanctions on Russian products as punishment for its invasion are also creating an opening on world markets that Chinese refiners are keen to exploit. China’s appetite for oil imports, which declined last year for only the second time since 2005. China’s biggest oil trader Unipec, a unit of Sinopec, made a flurry of purchases of Abu Dhabi crude last month that could indicate brighter prospects for downstream demand. Saudi Arabia has also raised prices for cargoes to Asia, signaling that it, too, expects more buying interest from its biggest customer. Domestic flights, for one, soared 80% over the period after the decision to scrap almost three years of stringent lockdowns unleashed pent-up demand. Traffic congestion in major cities has tripled since the end of the holiday, according to Bloomberg. NN:  To be clear here China is coming back alive. Pretty incredible and it will translate to a whole hell of a lot of oil to be consumed. Thats more oil then ever

MIAMI, Feb 8 (Reuters) – The chief executive of JPMorgan Chase & Co. (JPM.N), the biggest U.S. bank, cautioned against declaring victory against inflation too early, warning the Federal Reserve could raise interest rates above the 5% mark if higher prices ended up “sticky.” Jamie Dimon’s warning came after Federal Reserve officials said more rate rises are on the cards, although none were ready to suggest that January’s hot jobs report could push them back to a more aggressive monetary policy stance.

In reference to inflation, Dimon said “people should take a deep breath on this one before they declare victory because a month’s number looked good.”

“It’s perfectly reasonable for the Fed to go to 5% and wait a while,” Dimon said. But if inflation comes down to 3.5% or 4% and stays there, “you may have to go higher than 5% and that could affect short rates, longer rates,” he said. From a peak of nearly 7% in June, the Fed’s preferred measure of inflation stood at 5% in December – well above its 2% target but heading steadily downward. In a wide-ranging interview with Reuters, Jamie Dimon warned stricter regulation of credit card fees could prompt lenders  to extend less credit. He also said he planned to visit China, saying it was important to maintain relations there. Wall Street giants, including Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N), have cut thousands of jobs as a worsening economic outlook depressed dealmaking, while mortgage lenders have also trimmed staff. NN: Its not time to break out the Champaign. In fact soon inflation will be rising again….. Won’t that be fun!!