Crude Oil Settles Higher

Daily Analysis - 03/08/2017

Bulls Cheer Robust US Demand

Crude futures ended higher in a choppy session on Wednesday amid fresh signs of a gradually tightening US energy market. Strong demand from the country has seen oil prices gain close to 10.00% since early last week despite production rising to new cycle highs through the end of last week.

Global Oil Supply Concerns Linger

The US Energy Information Administration reported a 1.527 million barrel drawdown in crude stockpiles last week. The consensus of analysts was calling for a 2.957 million barrel decline during the period. Refinery capacity utilization increased to 95.40%, compared to expectations for a decline to 94.10%, while refinery inputs rose 123,000 barrels per day to 17.40 million. Brent crude futures have broken above the key psychological level of $50.00 a barrel.

However, the short-term upside could be capped on the back of ongoing high supplies from the Organization of the Petroleum Exporting Countries and production in the US that is still rising. Data compiled by Thomson Reuters showed crude shipments by OPEC and Russia hitting a year-to-date high of 32.000 million bpd in July, up from 30.500 million bpd in January. Brent futures were last seen trading around $52.10 a barrel, pulling back from earlier session highs.

US Private Sector Hiring Slows

A report produced by a payrolls processor ADP on Wednesday showed that US private employers created fewer-than-expected jobs in July as the economy inches closer to full employment. Companies added 178,000 jobs last month, just shy of Wall Street expectations of 185,000. Private payroll gains in June were revised higher to 191,000 from an originally reported increase of 158,000.

The ADP figure comes ahead of Friday’s official and more comprehensive non-farm payrolls, which includes both private and public sector employment. Economists surveyed by Reuters are looking for total US nonfarm employment to have grown by 183,000 in July, with the unemployment rate projected to trickle lower to 4.30% from the 4.40% reported a month earlier. S&P 500 futures are stuck trending inside a narrow range to last trade around the 2470-mark.

China Services Gauge Edges Lower

Activity in the Chinese service sector expanded in July, albeit at a slightly slower pace, a private survey showed early Thursday. The Caixin China services PMI fell to 51.5 in July from 51.6 in June, matching the April reading. A figure above 50 indicates expansion, while a level below that points to a contraction in activity. Apart from coinciding with the lowest since May of 2016, the data serves as further evidence of the potential for soft period in the sector following the tepid official data.

The services sector accounted for close to half of Chinese economic activity in the first half of the year, increasing by 7.70% during the period and easily surpassing the overall GDP growth rate of 6.90%. The USDCNH pair is gaining in Thursday morning trade to currently hover around 6.7320.

Tesla Stock Surges on Quarterly Earnings Beat

Tesla reported a narrower-than-expected second-quarter loss, buoyed by revenue that almost doubled alongside figures indicating over 1,800 daily reservations for the Model 3. The electric car-maker posted a net loss of $336.00 million, or -$2.04 a share versus a loss of $293.00 million, or -$2.09 a share in the year ago period. Excluding one-time items, Tesla lost -$1.33 per share, topping the average analysts’ estimate of a loss of -$1.82 per share. Sales climbed to $2.79 billion from $1.27 billion a year earlier, also outpacing the consensus Wall Street estimate of $2.51 billion.

Chief Executive Elon Musk, while speaking with analysts on a conference call, said he expects Model S and Model X deliveries to rise during the second half of 2017. Tesla shares have rallied close to 52.00% since the start of the year, with the stock soaring 8.00% in Wednesday post-market trading following the release of the quarterly results.