Crude Oil Eases

Daily Analysis - 13/04/2017

Rising U.S. Production Brings Back Bears

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Crude oil futures fell for a second straight session on Thursday, moving further away from the one-month high hit in previous day’s trading. The latest dip in sentiment came on the back of data that showed U.S. production kept rising, reigniting fears about global oversupply.

Production Gains Offset Inventories Decline


Crude output increased by 36,000 barrels a day to 9.24 million, according to data released by Energy Information Administration. However, stockpiles fell 2.17 million barrels, versus a 1.5 million barrel drop forecast by analysts polled by Bloomberg. Analysts attribute the decline in crude stocks to refiners increasing their production ahead of the upcoming summer “driving season” when motorists hit the road for vacations.

The drop translates to only a small slice of the almost 50 million barrel rise in US inventories thus far this year, and came at a time when crude was rallying on expectations that the oil market was finally beginning to tighten. OPEC, in its monthly report released Wednesday, said it now saw US production rising by 540,000 barrels per day, a sharp 200,000 barrels a day increase from last month. U.S. Crude May futures were last seen just above the $53-mark.

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U.S. Dollar Slumps After Trump Comments


The U.S. dollar dropped sharply against a basket of major currencies late Wednesday after President Donald Trump told the Wall Street Journal that the greenback is "getting too strong." Trump was especially concerned that given the recent surge in the dollar, American manufacturers would find it increasingly difficult to compete with the relatively less expensive Japanese and European products.

The dollar had rallied to a 14-year-high after Trump won the presidential race amid investor hopes that his proposed fiscal spending, tax reforms and deregulation would bolster the US economy. However, the greenback has shed almost 60.00% of its post-election gains as doubts increase over whether the Trump administration will be able to deliver on its economic proposals. EURUSD is currently hovering around 1.06700.

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 Bank of Canada Leaves Benchmark Rate Unchanged


The Bank of Canada left its benchmark overnight rate unchanged at 0.50%, saying economic growth was yet to become stable. The consensus among economists was that the bank would not shift the rate. Despite growth coming in stronger than the central bank’s forecast in January, policy makers characterized the expansion as "uneven," with exports and non-commodity business investment remaining weak, raising doubts about the sustainability of the upturn.

The bank now expects real gross domestic product to expand by 2.60% in 2017, up from its January forecast of 2.10%, before slowing down to 1.90% in 2018 and 1.80% in 2019. Analysts now expect the Bank of Canada to not hike rates before April 2018. USDCAD is falling in early Thursday trade, with the pair currently perched below 1.32300.

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New Zealand Manufacturing Strengthens


A key measure of New Zealand’s manufacturing sector strengthened in March, providing further evidence that the recent slowdown in factory activity was a temporary blip. The Business NZ Performance of Manufacturing Index (PMI) stood at 57.8 in March, versus the 55.7 recorded in February. A PMI reading above 50 signifies expansion, while a figure below indicates contraction. Manufacturing conditions have remained favourable for close to four years.

However, a GDP growth slowdown in the fourth quarter, to which manufacturing was a negative contributor, had investors worrying that the sector had peaked. The domestic economy continues to be in robust shape, aided by strong tourist inflows and a booming construction industry. NZDUSD is rallying on Thursday after breaking above the key psychological level of 0.70000.

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