Brent Crude Tops $50

Daily Analysis - 26/07/2017

Oil Rallies on Big Drop in US Supplies

Brent crude futures for September delivery broke above the key psychological barrier of $50.00 per barrel after the American Petroleum Institute reported a significant drawdown in US crude oil inventories last week. Brent futures were last trading around $50.60 a barrel, trading sideways after Tuesday’s spectacular rally.

Oil Bulls Take Back the Helm

US crude stockpiles sharply declined last week as refineries increased their output, data from industry group the American Petroleum Institute showed late Tuesday. Crude supplies fell by 10.20 million barrels during the week ended July 21^st to 487.00 million. The official supply figures from the US Energy Information Administration will be released later on Wednesday. Analysts surveyed by S&P Global Platts have forecast a drop of 2.50 million barrels in crude inventories. Investor optimism received an added boost after Saudi Arabia announced it would be limiting its crude exports to 6.60 million barrels a day in August, down almost 1.00 million barrels a day from the same period last year. Oil prices have been rallying ever since, climbing 2.50% in the past couple of sessions. Market sentiment has turned decisively bullish, with $51.20 representing the immediate resistance, a close above which could see Brent climbing to $52.50 a barrel.

US Home Price Growth Eases

Prices of US single-family homes rose at a slower pace in April according to a closely-watched report released Tuesday. The S&P/Case-Shiller Home Price Index recorded year-over-year growth of 5.70% in May compared to the 5.80% recorded a month prior. The pace of growth reported in May was the weakest increase since January, and came in below expectations of 5.80%. Denver, Portland and Seattle posted the strongest price growth, while the rate in Chicago was the weakest. On a monthly basis, the 20-city index gained a seasonally adjusted 0.10%, also below the 0.30% forecast by economists. Excluding seasonal adjustments, prices edged 0.80% higher from April. Dow Jones Industrial Average futures ended Tuesday modestly higher following the results, with the equity benchmark last seen trending flat around 21550, just below strong resistance at 21650.

UK Factory Output Strongest Since 1995

British factories increased output at the fastest pace since 1995 over the past three months, further supporting the view that manufacturing might help sustain the economy as it slows during the course of the year. The Confederation of British Industry's quarterly industrial trends survey showed manufacturing rising to +31 during the May-July period, up from +22 in the three months to April. The business lobby group remarked that the steep fall in the value of Sterling over the past year has bolstered export orders, while domestic demand continued to remain strong. The report comes ahead of the preliminary second quarter GDP results alongside the Bank of England’s interest rate decision next week. Most economists now expect the Central Bank to keep rates on hold until 2019. FTSE 100 futures were last seen around the 7370-mark after recovering on Tuesday.

Australian Inflation Eases

Data released overnight by the Australian Bureau of Statistics showed that inflation came in surprisingly soft last quarter, with the core inflation figure staying below the Central Bank’s target for a sixth straight quarter. The consumer price index rose 0.20% during the second quarter versus estimates of 0.40%. Annualized CPI gained 1.90%, well short of the 2.20% increase forecast by economists. The Reserve Bank of Australia has set an annual inflation target of between 2.00% and 3.00%. The prolonged period of subdued inflation had forced the Central Bank to slash interest rates to a record low of 1.50% last year, with no change in policy since the last adjustment. Investors reacted to the latest inflation figures by trimming the odds of a hike, with the inter-bank market suggesting an 8.00% likelihood of a rate hike by December. AUDUSD is down in Wednesday morning trade to currently hover around 0.7885.