World of Oil Derivatives

Jorge is back from Asia, and his findings from Singapore, China and Vietnam are stark. Building construction and industrial demand has slowed down significantly. The slow-down in China is serious, and the West is yet to see and understand the enormity of the change. 

The noise on the streets of Shanghai is no longer the sound of motor engines, but just tyres on the road, as around 70% of the cars in the roads in China are now EV's - which has led to a complete down turn in gasoline demand. 

With an already short market hitting $69/bbl last week, we must ask, how much shorter can the market get? Secondly, how will OPEC+ manage supply when the demand growth in Asia just isn't there? 

Director of Benchmarking, Jorge Montepeque, Group Head of Research, Harry Tchilinguirian and Research Analysts Will Cunliffe and Edward Hayden-Briffett delve into the future of gasoline demand in Asia and what this means for the market.

A note from Jorge: https://www.youtube.com/watch?v=VScSEXRwUqQ

The End (Song by The Doors)

This is the end

Beautiful friend

This is the end

My only friend, the end

Of our elaborate plans, the end

Of everything that stands, the end

No safety or surprise, the end

I'll never look into your eyes again

This episode of Oil Insights was recorded on 25th September, 2024 at 10am BST. Onyx Research Analyst Mita Chaturvedi and Research Associate Martha Dowding join Group Head of Research Harry Tchilinguirian to discuss the week that was and the week to come in the oil market.

In this week's episode, Harry Mita and Martha unpack recent price movements in Brent and the tumultuous couple of weeks since the APPEC meeting in Singapore and the Fed's decision on rate cuts. As we continue to see Brent settle in the low-to-mid-$70/bbl range, the team discuss their personal bullish - or bearish - outlooks. They also take a look at CTA and managed-by-money positions.

This week's product of interest is gasoline; Harry and Martha analyse what's been driving the sell-off in cracks, regional contrasts, how Cal25 is shaping up, and more. 

We’d love to hear from you! If you’d like to get involved with our podcast, please leave a comment on this video on our YouTube page. You can also listen to the podcast on Spotify, Apple Music, or Google Play.

Last week, the Federal Reserve announced a hawkish 50bp cut, with Jerome Powell stating the US economy is strong after data beat expectations. Meanwhile, the unemployment rate surpassed the 36-month average - reaching levels previously seen during economic recession - and US home sales fell to their second-lowest level in 14 years.

 In Europe, the German economic data is looking woeful and continues to fall, with chances of a technical recession increasing. Poland, however, is seeing strength as GDP per capita soars. In Asia, China's Tier-1 City Property Index is 28% off its highs, and Singapore and Taiwan's electronic exports are surging.

S&P and gold are at all-time highs. Brodie and Todd also discuss bearish diesel, AUDNZD yields, USDJPY, and more.

Key data releases this week: 
Monday- U.S. flash PMIs
Tuesday - U.S. consumer confidence, RBA rate decision
Thursday - Core PCE inflation
Friday - BOJ rate decision, UK & Cad retail sales

Senior Oil Derivatives Trader, James Anderson joins Group CEO Greg Newman to discuss the oil market’s significant reset, with crude futures prices dropping by approximately $10/bbl over the past few weeks. 

Greg and James debate the collective sentiment within the oil industry, noting how many traders follow the herd, seeking comfort in the analyses of research houses and banks. This creates a battle for narrative dominance—who will be the market's lead forecaster?

The recent sell-off raises important questions: how much of it was driven by macroeconomic factors versus a shifting outlook within the industry? 

The year started with bullish sentiment toward Q3, with summer flat prices and gasoline being key trades. However, forecasts have since shifted, with weakening demand now projected for 2025. This divergence between the IEA and OPEC outlooks has been accompanied by weakness in the Cal 25 spreads, raising questions about the market's consensus view for next year.

All Chinese data is coming out weaker than expected, with unemployment rising to 5.3% and the economy entrenched in deflation with the GDP deflator declining for its fifth consecutive quarter. The Chinese CS300 equity index is trading at it's lowest level since 2019, and property shares have declined by over 90% in just 4 years.

James Brodie and James Todd focus on the upcoming Federal Reserve meeting; will they cut 25bp or 50bp? They also investigate the betting odds for Trump and Harris in regard to the upcoming election, and also discuss the weak sentiment for U.S. small business. A NFIB small business survey showed the second-lowest reading since 1985, where only the GFC was worse.

Onto commodities, gold made an all-time high, reaching $2,466. Meanwhile, USDJPY and the U.S. 2-year bond yield make new cycle lows.

Key data releases this week:
Monday- NY Empire manufacturing data
Tuesday - U.S. retail sales, Cad inflation
Wednesday - U.S. Fed FOMC rate decision
Thursday - Aussie employment, BOE rate decision
Friday - BOJ rate decision, UK & Cad retail sales

This episode of Oil Insights was recorded on 10th September, 2024 at 11am BST. Research Associate Vincent Wu guest hosts alongside Research Analyst Mita Chaturvedi as Harry Tchilinguirian attends APPEC in Singapore.

In this week's episode of Oil Insights, Vincent and Mita delve into the current state of the oil market and discuss the potential for a significant price reversal given the ultra-short positioning by money managers, including CTAs. Amid prevailing economic uncertainty, sluggish Chinese demand and the anticipation of additional OPEC+ barrels, bulls seem to have given up as the market accepts a lower flat price environment. 

The team discusses OPEC+ strategy as of late, alongside the downgrading of forecasts by trade houses and Wall Street banks, and more. They also focus on the LPG market as this week's featured product. Mita explains how shifting to winter specification gasoline blending has injected new support into butane, while international propane saw a standout performance this week despite a bearish futures market.

We’d love to hear from you! If you’d like to get involved with our podcast, please leave a comment on this video on our YouTube page. You can also listen to the podcast on Spotify, Apple Music, or Google Play.

James and Will discuss weak U.S. ISM manufacturing. New orders fell to 44.6 points from 47.4 in July, experiencing contraction for the 3rd straight month. The prices paid index jumped to 54.0 points from 52.9 in July, expanding for the 8th month in a row. Inventories unexpectedly surged the most in the past decade.

There’s weak employment data out of the U.S. with just 142k jobs created in August. Full-time work is rapidly decreasing (-438k), while part-time work is up (+527k). An All-Time High (464,000) Americans are now working 2 full-time jobs.

German IP is now 9.5% below February 202, Nvidia has dropped 28% since its peak and New Zealand house prices fall for the sixth consecutive month.
 
Key data releases this week are:
Tuesday - U.K. employment, IP, monthly GDP
Wednesday - U.S. CPI
Thursday - U.S. PPI, ECB rate decision (25bp cut fully expected)
Friday - U.S. consumer confidence, Chinese money supply

Group CEO Greg Newman discusses the challenges and evolving landscape of the oil derivatives market. He highlights the central role of exchanges in price discovery and liquidity, noting that these exchanges have become the heartbeat of the market.

Greg also reflects on the historical dominance of Western financial centres in oil trading but suggests that the future may shift towards other regions, particularly the East. He cites the example of ADNOC's Murban contract and recent moves by Saudi Arabia's Tadawul to acquire Dubai Mercantile Exchange, signalling a broader trend of diversification away from Western dominance.

Greg also emphasizes the rising influence of retail investors, particularly in Eastern markets like China, where retail trading has driven significant liquidity growth. He mentions Onyx's strategic initiatives, including a deal with the Jakarta Exchange, to tap into this retail-driven momentum. Greg predicts a seismic shift in the oil derivatives market, with Eastern exchanges and retail investors playing a central role in its future expansion. The global retail market, which could reach $145 trillion by 2027, is poised for radical transformation, driven by the growing importance of retail participation and the emergence of new global trading hubs.

Following the announcement of Onyx Capital Group's expansion into Retail Trading through the launch of Onyx Markets, Group CEO Greg Newman sits down with Director of Retail Trading, Andrea Rebusco, to discuss this significant milestone. This move is poised to transform the oil market, driving forward digitization, democratization, and scaling.
The time has come to open this market to everyone. Retail investors have long been marginalized and excluded from the contracts that shape the prices of essential oil products, which power the global economy. Onyx Markets aims to change that.
Andrea Rebusco, who brings extensive experience from Money farm and IG, has played a key role in realizing this vision and will continue to lead Onyx Markets into the future.
In their discussion, Greg and Andrea explore the target audience for Onyx Markets, how users will be educated, and what sets Onyx apart in the Retail Trading space. We welcome any additional questions or comments.
To receive more information about Onyx Markets, click here:https://onyxcapitalgroup.typeform.com/retail#source=xxxxx

For a special episode of Oil Insights, Harry Tchilinguirian, Group Head of Research, is joined by Dr Michal Meidan, Head of China Energy Research at the Oxford Institute for Energy Studies, for a special edition of our podcast today focused on China. 

In this episode, Harry and Michal explore China's oil demand outlook as institutional forecasters, including the IEA and OPEC, alongside prominent Wall Street banks, downgrade their views. They discuss how weak macroeconomic data, coupled with challenges in government policy stimulus, cast doubts on China's ability to achieve its targets and deliver on oil demand growth.

Harry and Michal review oil product demand in China, particularly how the shift towards electric vehicles affects gasoline demand. Naphtha and propane demand from the petrochemical sector are also discussed in the context of weakening margins. Finally, substitution toward natural gas is also examined to see how it affects the diesel outlook. Join Harry as he delves into these pressing issues with Dr Michal Meidan, as China's oil demand performance will have important implications for the global oil balance at a time when the OPEC+ group is pondering adding more oil to the market.