OIL: Crude Time Spreads Rally Amid Geopolitical Risks
Brent crude prompt time spreads have rallied to the strongest since late November as the market weighs geopolitical risks such as Russia and Venezuela against oversupply concerns heading into 2026.
- China crude purchasing is an added uncertainty amid signs that stockpiling has re-accelerated, with inventories climbing back towards the high of nearly 1190mbbl set in mid-August, Kpler says.
- The Brent 1-2 month spread has rallied from a low of +$0.18/bbl on Dec. 16 to a high of +$0.50/bbl earlier today. The WTI 1-2 spread has also gained to the highest since Dec. 8 at around +$0.2/bbl from only just above parity last week.
- The Jun26-Dec26 has returned into positive territory after trading in contango since Dec. 11. The Brent spread is currently at +$0.02/bbl compared to a low of -$0.57/bbl last week. The WTI Jun26-Dec26 spread is up to +$0.8/bbl.
- Crude call volatilities have also surged over the last week taking the second month call-put skew back into positive territory at +0.30% from around -3.5% on Dec. 16 while WTI is up to +0.15%.
- Brent FEB 26 up 2.2% at 61.82$/bbl
- WTI FEB 26 up 2.2% at 57.76$/bbl
- Brent FEB 26-MAR 26 up 0.04$/bbl at 0.46$/bbl
- Brent JUN 26-DEC 26 up 0.18$/bbl at 0.02$/bbl
- WTI FEB 26-MAR 26 up 0.02$/bbl at 0.18$/bbl
- WTI JUN 26-DEC 26 up 0.18$/bbl at 0.08$/bbl
Source: Bloomberg Finance L.P.
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RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
