According to the EIA’s latest estimates right up to last week, oil inventories in the US have absolutely exploded, rising an incredible 58.4 million barrels in just seven weeks (the same period of comparison as stated earlier for 2001). This is, obviously, nearly double the glut from twenty-two winters ago.
While not a new record, this fact provides very little comfort. The only seven-week period when crude stocks rose more was that time when COVID fears had shut down large swaths of economic, civil, and just daily life in the country – from the week of March 13 to and including the week of May 1, 2020, domestic inventories added 78.5 million barrels.
Yeah sure. I can see why Jeff thinks that but the data just doesn't back it up. It's not uncommon for there to be certain areas of the economy that are weak while others are strong for instance.
Last year was especially confusing in terms of getting a thorough read into the US economy since we were facing three shocks. These were:
1) Real incomes shock due to higher commodity (energy) prices
2) Continued shift away from goods to services - leading to inventory builds in retail and other sectors
3) China's lockdowns got worse as the year went on.
If you consider it from a jobs perspective, companies are unlikely to hire now unless they have some line of sight for demand 6 months out. That can come in the way of rising orders, or large backlogs. Until late last year, we had both of these - and then new orders fell away as consumer demand began to weaken.
You can see something similar when you look elsewhere too - even across Europe where the consumer is much weaker. Jobs growth remained strong.
https://twitter.com/LizAnnSonders/status/1618943926022422528 - If you at real private domestic sales (private consumption + investment) shows that the real weakness has been more over Q4 rather than Q1 of 2022. Main point to remember is just that the services sector is about 70-80% of the economy and there aren't many measures that report this. The only high-frequency one is Real Services PCE (which I often reference in my posts).
With oil, it is worth noting that China has been shut and they're 15% of global oil demand. In addition, manufacturing activity has been weak this winter so there's less demand for transportation and other fuels. Let's see how it goes - it looks like the oil price is factoring in some sort of demand rebound - which if it comes will support the price, but if not, we could see it test $70 p/bbl on Brent. I don't have a strong view there though.
I'd say my base case is that growth is picking up a bit right now - globally. China's reopening is going well and will benefit consumer and tourism-related names the most. This should last until maybe end of Q2 this year.
However seeing durable growth over the rest of 2023 will be difficult as stronger growth now puts further pressure on the Central Banks to continue their hiking cycle. We've already seen this play out a bit this year with the large beats in retail sales, jobs growth etc. (although I have my doubts about how real they are).
So let's see when we get to Q3 how things look. I have a bit more confidence in the US economy than in Europe and elsewhere.
Your stuff is always excellent. Are you running a fund?
Thanks Aaron, I appreciate the kind feedback! I don’t run a fund but do work as an analyst for a sell-side macro firm.
Btw hope you don't mind if I get your thoughts on this post?
https://www.realclearmarkets.com/articles/2023/02/24/the_very_serious_possibility_recession_has_already_happened_883667.html
According to the EIA’s latest estimates right up to last week, oil inventories in the US have absolutely exploded, rising an incredible 58.4 million barrels in just seven weeks (the same period of comparison as stated earlier for 2001). This is, obviously, nearly double the glut from twenty-two winters ago.
While not a new record, this fact provides very little comfort. The only seven-week period when crude stocks rose more was that time when COVID fears had shut down large swaths of economic, civil, and just daily life in the country – from the week of March 13 to and including the week of May 1, 2020, domestic inventories added 78.5 million barrels.
Yeah sure. I can see why Jeff thinks that but the data just doesn't back it up. It's not uncommon for there to be certain areas of the economy that are weak while others are strong for instance.
Last year was especially confusing in terms of getting a thorough read into the US economy since we were facing three shocks. These were:
1) Real incomes shock due to higher commodity (energy) prices
2) Continued shift away from goods to services - leading to inventory builds in retail and other sectors
3) China's lockdowns got worse as the year went on.
If you consider it from a jobs perspective, companies are unlikely to hire now unless they have some line of sight for demand 6 months out. That can come in the way of rising orders, or large backlogs. Until late last year, we had both of these - and then new orders fell away as consumer demand began to weaken.
You can see something similar when you look elsewhere too - even across Europe where the consumer is much weaker. Jobs growth remained strong.
https://twitter.com/LizAnnSonders/status/1618943926022422528 - If you at real private domestic sales (private consumption + investment) shows that the real weakness has been more over Q4 rather than Q1 of 2022. Main point to remember is just that the services sector is about 70-80% of the economy and there aren't many measures that report this. The only high-frequency one is Real Services PCE (which I often reference in my posts).
With oil, it is worth noting that China has been shut and they're 15% of global oil demand. In addition, manufacturing activity has been weak this winter so there's less demand for transportation and other fuels. Let's see how it goes - it looks like the oil price is factoring in some sort of demand rebound - which if it comes will support the price, but if not, we could see it test $70 p/bbl on Brent. I don't have a strong view there though.
Hope that helps!
Thanks! So basically it's a:
1) 2022 backlog demand thesis +
2) continue 2019 macro trend thesis?
Would you say that's correct? Could I humbly ask what your base case is?
I'd say my base case is that growth is picking up a bit right now - globally. China's reopening is going well and will benefit consumer and tourism-related names the most. This should last until maybe end of Q2 this year.
However seeing durable growth over the rest of 2023 will be difficult as stronger growth now puts further pressure on the Central Banks to continue their hiking cycle. We've already seen this play out a bit this year with the large beats in retail sales, jobs growth etc. (although I have my doubts about how real they are).
So let's see when we get to Q3 how things look. I have a bit more confidence in the US economy than in Europe and elsewhere.
Alright cool! Thanks!
My stuff will likely always remain free! So you'll always get my content / can reach out to me whenever.
The goal is more to build a body of work, and reach a wider professional audience rather than make money from subs at the moment.
Haha ok good to hear!