Rumors that Chinese exports surged in May boost market sentiment and reverse grounds in stock markets. Chinese and Hong Kong shares rally in late trading session as the news signal global economic recovery remains strong despite European sovereign crisis woes. WTI crude oil holds above 72, awaiting the inventory data by the US Energy Department and the monthly report by the OPEC.
Reuters, quoting 3 unidentified persons, said that China's exports expanded +50% y/y in May and new loans reached +RMB 630B, exceeding consensus forecasts of RMB 600B. The news sent the Shanghai Composite Index +2.8% higher, the biggest increase since May 24. Hong Kong's Hang Seng Index also reversed earlier losses and ended the day with modest gain (+0.69%). The data are not yet verified but even if that's true, it may not help sustain rallies in stocks and commodity prices. Reuters also cited unidentified sources that China's headline CPI soared +3.1% y/y in May. Compared with +2.8% in April, and +2.4% in March, May's reading should exacerbate worries over Chinese tightening.
Yesterday, API's report showed huge draw in crude oil inventory while both gasoline and distillate stockpiles surged during the week. Analysts anticipate draws in crude and gasoline stockpiles in EIA's report later today. However, we see the risk of seeing builds in gasoline as the gasoline demand in the first week of the driving season disappointed. According to MasterCard, US gasoline demand at the pump dropped -5.8% to 9.146M bpd in the week ended June 4, after staging a sharp rise in prior week.
In June's Short-term Energy Outlook, the US Energy Department (EIA) revised down its forecasts on global oil demand for 2010 and 2011. At the same time, it also specifically addressed the impact of hurricane season in Gulf of Mexico on production. EIA projected that hurricanes will reduce production in the area by -26 mmb for crude oil and -166 bcf for natural gas.
Natural gas price fell for the first time in first day on Tuesday as meteorologists forecast Temperatures in the Midwest and Northeast will 'fall to at least normal, if not below average' next week. Optimism for stronger demand for gas-powered electricity (air-conditioning) waned. The Nymex front-month contract dipped -2.2% and closed at 4.808 yesterday.
The EIA revised up its forecasts on natural gas demand to 64.9. bcf/day and 64.60 bcf/day for 2010 and 2011 respectively. In May, the Department's corresponding estimates were 64.43 bcf/day and 64.15 bcf/day. The upward revisions hinged on stronger demand from electic power and industrial sectors. At the same time, forecasts on gas supplies were also revised up to 65.87 (previous: 65.61 bcf/day) bcf/day and 65.14 bcf/day (previous: 64.89 bcf/day) for 2010 and 2011 respectively. On net, the EIA does not see demand/supply balance more supportive to gas price and it revised down its average gas price forecasts to 4.49 (previous: 4.48) for 2010 and 5.06 for 2011 (previous: 5.34). In our opinion, it's hard to see gas price breaking determinedly above 5 until there's solid evidence of supply reduction.