China effect and Oil.

SFOT is aware that the release of China's trade numbers overnight has been one of the most highly anticipated number so far this month. Therfore, the less than expected trade balance, topped by much lower exports and imports may be of interest to some macro punters in the commodity space. Exports suggests world trade may not be as rosy as the greenshoot /reflation story suggests, however it is the import story that is more interesting. With a full month of rising prices in May, it is interesting to see this number falling much more than expected. The breakdown for oil related imports is quite clear. Stock piling for crude was very well publicised, but what has not been so well documented is the fall in imports of refined products. Seasoned traders will remember that it was last year in April and May that China imported the highest amount of Diesel, and this sent middle distillates to new highs shortly before the olympics. As previously mentioned, China's import of crude perhaps is a way of diversifying their reserves, but in true demand terms, refined products again shows that depending on China to kick start global recovery is going to take a longer time than what markets are pricing in now.

The DOE data yesterday confirms that of API, crude inventories continues its drawdown in the US, helped by reduced imports and production. This morning also sees a little bullish news from IEA, that demand has been raised by 120kb/d for this year. First evidence of the potential for bottoming of demand is here. This will give the longs of the back end of the crude curve comfort. In fact, SFOT sees that the back end of the curve will reach $100 way before year end if this demand really bottoms and crude stocks keep drawing at a sustainable rate. Apparently a major player loaded up with a bunch of near the money calls 1 year out yesterday, which is a fairly interesting flow in recent times. I shall stress again, while SFOT is long and happy so, he is taking off some outright exposure here and increasing long gamma in the front.