US oil & gas sector: things to get worse before they get better
Monday February 1, 2016
China kicked things off overnight, setting a cautious tone with its worst official manufacturing print since August 2012. The Caixin manufacturing release also showed ongoing contraction from the sector, but in contrast was better than consensus.
Eurozone manufacturing was in line with consensus, boosted by Germany and Spain, held back by Italy and France. Japan was below consensus, but showing expansion; Brazil was above consensus, but showing contraction. The US is on deck shortly, likely showing ongoing contraction too.
The crude complex is getting a solid dose of the WBWs (whoop-bang-wallops) today, as Chinese economic worries weigh and expectations of a coordinated cut wane. The latest CFTC data show an interesting quirk; not only did we see short positions cut (that bit isn't so surprising), but we also saw speculative long positions increase significantly. This means that net-longs increased by the most (in percentage terms) since October 2010:
The chart below is from this piece over the weekend, which takes a look at the historical contribution of the oil and gas sector to the US economy. While in the late 1990s its share accounted for less than 1% of the economy (as the broader economy boomed), the deterioration of the sector in the midst of the great recession meant it was a drag on the economy in 2009.
Last year it accounted for 3.1% of GDP, but after providing a boost to the economy for the majority of the five-year period from 2010-2014, it has been dragging it lower for the last two quarters. That said, this drop doesn't account for the offsetting benefit from lower fuel prices.
