Crude Crumble Continues

Daily Analysis - 14/01/2016

Oil Prices Sustain the Decline Amid Persistent Inventory Concerns


Brent reached lows not seen since 2003, tumbling to $29.63 on Wednesday with West Texas Intermediate falling to near $30 a barrel after hitting new lows of $29.93 during Tuesday’s trading session. Another inventory build for onshore crude in the US for the end of the previous week is continues to push prices lower near-term.

European Industrial Production Declines

European industrial production fell the most since 2014 according to the latest report from Eurostat, reflecting the recent deceleration in global trade despite increased competitiveness from a weaker Euro.  Last week’s data from France, Germany contributed to the decrease whereas Spain’s positive results were not strong enough to offset the bigger picture decline. For the month of November, industrial output plunged -0.70% compared to October’s revised value of 0.80%. Declines were attributed to energy output falling by -4.30%, capital goods sliding by -1.90%, and consumer durable goods down by -1.00%.  Annual industrial production reflected the decline, falling to 1.10% expansion versus the prior year, retreating from the previous month’s revised value of 2.00%. Annual data recorded production of intermediate goods rising by 2.10%, durable consumer goods by 1.70% and both capital goods and non-durable consumer goods growing 1.20%, while production of energy fell by -2.80%.


Crude Oil Inventories Climb

The latest Energy Information Administration report highlighted a build in crude oil inventories for the week ending January 8th. The storage figure registered a rise of 234,000 barrels following previous week’s drawdown of -5.085 million. During the announcement, oil prices gave up earlier gains catalyzed by the rebound in global equities thanks to the stronger Chinese trade surplus, sending Brent below $30 per barrel and WTI down to $30.10.  Downstream production in the energy industry remains robust as evidenced by the substantial gains in distillate fuel supplies which climbed for a third consecutive week including gains from heating oil and diesel fuel. In recent weeks, consumption for heating oil has been subdued as warmer than average weather conditions weakened demand. As onshore storage levels continue to rise towards their limit, analysts are warning that Cushing is approaching full capacity, potentially adding to downside pricing pressures.


Australian Unemployment Steadies

Australia’s unemployment rate held steady for the month of December at 5.80%, having fallen dramatically over the past year thanks in large part to the highly accommodative policy measures from the Reserve Bank of Australia.  Employment dropped by -1,000 in December compared to previous month’s 75,000 surge, but nevertheless exceeded expectations of a -12,500 loss. With mining in the country still weakening, in large part reflecting the slowdown of the Chinese economy, policymakers are trying to shift away from natural resources. Stronger job creation has been attributed to improving consumer sentiment, boosting spending in the economy. Much of the gains are linked to the RBA’s policy measures to keep borrowing conditions attractive, with interest rates currently sitting at 2.00%, in order to boost services spending at a time when the mining industry is cutting back on investment to preserve capital.


French Inflation Swings Higher

The French National Institute of Statistics and Economic Studies reported stronger than anticipated consumer price growth for the month of December, raising speculation that inflation might finally be on the rebound for the region. December saw headline inflation rise by 0.20% compared to October’s -0.20% contraction. While energy prices may continue to weigh on the outlook, advances in clothing, rising rents combined with climbing transportation and communication services contributed to the gains. On an annualized base, consumer prices rose to 0.20% after stabilizing in November. The increase in the costs for food and services largely managed to offset the declines assigned to manufacturing products and energy. The harmonized index of consumer prices also reported an improvement both monthly and annually by 0.20% and 0.30% respectively. The reaction in the Euro was fairly limited, with the common currency rising in-line with risk sentiment globally after volatility subsided temporarily.


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