Crude oil inventories now relatively low

Dropped below 2017-19 average last week

Chart of the Day

The weekly EIA report showed crude inventories dropped by a very large 7.3mn barrels last week, which was 5 mn more than analysts expected. The large fall means inventories are now 0.6% lower than their average at this time of year over 2017-19, which helps to explain why oil prices have been doing so well lately despite reduced demand. Essentially, producers have more than compensated by slashing production. This does mean there is a clear limit to how far oil prices might rise, given much of that production could come on stream again.

Macro

US initial jobless claims unexpectedly rose to an upwardly-revised 861,000 last week, although continuing claims decreased to 4.49mn the week before.

US housing starts fell to 1,580,000 annualized in January, but the increase in building permits to 1,881,000 suggests they will soon rise again.

Markets

US bond yields took a breather yesterday, but those elsewhere continued to rise.

Higher bond yields may be one of the factors behind the recent weakness of “high-growth” stocks including electrical vehicles, which have generally fallen sharply in the past couple of weeks.

It’s not just the tech-type stocks that are hurting, though, with the small-cap Russell also dropping back. That could also reflect fears of higher rates though, given many small-cap companies face less favorable borrowing conditions than their large-cap peers.

Meanwhile, the UK’s FTSE index underperformed yesterday with a fall of 1.5% which took its relative performance further behind the S&P 500 and the other advanced economy indices.

This was partly a sign of strength though and related to the further rise in the GBP, which reduces the value of UK firms’ foreign earners. Sterling is almost back at $1.40, the highest since the Brexit vote.

Copper rose by a further 2.1% yesterday to its highest since 2012.

It wasn’t the only commodity doing well - lumber prices hit a record high. All these moves are creating a new narrative that we at the opening stages of the next “commodity supercycle”.

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