Strong Chinese Corn Buying Continues

Energy

Oil has come under some further pressure this morning with ICE Brent now trading below US$55/bbl. Chinese manufacturing PMI data released over the weekend would not have helped, coming in lower than the market was expecting, and below what was seen over December. The more localized lockdowns that we have seen in parts of China over January would also have weighed on manufacturing activity. Unrelated to this, a group of Republican senators are pushing President Biden to scale back the size of the proposed US$1.9t COVID-19 relief package, and have proposed an alternative package of US$600b.

Despite the recent pressure we have seen on oil prices, the latest positioning data shows that speculators increased their net longs in ICE Brent over the last reporting week by 23,980 lots, leaving them with a net long of 338,153 lots. The bulk of this increase was driven by fresh longs, rather than short-covering.

Last Friday, the EIA released its latest monthly production numbers, which showed that US crude oil production in November averaged 11.12MMbbls/d, an increase of 692Mbbls/d MoM, and the highest monthly production number seen since April when output averaged a little over 12MMbbls/d. The US industry is making a slow but steady recovery following the price collapse last year, and according to Baker Hughes data, we have now seen 10 consecutive weeks of increases. Last week the number of active oil rigs in the US increased by 6, taking the total count to 295. In fact, since bottoming out in August, the oil rig count has increased by 123.

Looking at the week ahead, and the OPEC+ JMMC are set to meet on Wednesday. However given that OPEC+ has already agreed on production targets for February and March, it is unlikely that we will see any recommendations for changes to output levels. Instead, the focus will likely remain on compliance for all members. According to Bloomberg, an OPEC+ delegate has said that compliance between the group was 99% in January. However, we will need to wait for Wednesday in order to get confirmation on compliance levels.

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