Crude Oil Tumbles to 2017 Low

Daily Analysis - 09/03/2017

Jump in US Inventories Hammers Oil Futures


Crude oil prices sank by over 5.00% on Wednesday, slumping to their lowest low of the year after US government data revealed a large uptick in weekly crude supplies that lifted total stockpiles to a fresh record.

Oil Prices Sink as US Production Hits 13-Month High

US crude oil stockpiles increased by 8.209 million barrels on a week-over-week basis according to a report issued by the Energy Information Administration yesterday.  The number, surged past expectations, coming in at more than four times what analysts had forecast. The latest data provides further evidence that rising US output is more than offsetting efforts led by OPEC and Russia to curb the global supply glut by reducing their own output. For the past three months, the benchmark West Texas Intermediate crude has been consolidating in a range between $49.60 and $55.25 a barrel.

Technical analysts reckon that if prices were to break below the key psychological level of $50.00, a selloff towards $42.00 looks increasingly likely. WTI futures are currently trading close to $50.50 a barrel after falling as low at $50.05.


ECB Policy Meet in Focus

The European Central Bank is all set to leave monetary policy unchanged on Thursday as it keeps a close watch on the upcoming elections in France and the Netherlands amidst the backdrop of an upsurge in populist sentiment. Economic sentiment is at a six-year peak, manufacturing output is rebounding, and unemployment is at its lowest since the financial crisis.

However, regardless of the recent uptick in economic growth and inflation, the consensus is for ECB to resist calls to tighten policy. Economists are of the view that the earliest ECB move could be a guidance tweak during the second half of the year, as ECB President Mario Draghi continues to walk a tightrope in the supercharged political environment. After ending Wednesday mostly flat, EURGBP is trending sideways with prices little changed from the previous sessions close near 0.8660.


US Private Jobs See Big Surge

Private employers across the United States displayed greater than anticipated job creation in February, indicating underlying strength in the economy that should further encourage the Federal Reserve to hike interest rates next week. Data from the ADP nonfarm employment report, released on Wednesday, showed private payrolls increased by 298,000 jobs last month, easily topping consensus forecasts for a gain of around 190,000. Job creation gains in January were also revised higher to 261,000 from 246,000.

The report comes just ahead of Friday’s official Bureau of Labor Statistics report, with economists anticipated nonfarm payrolls increased by 190,000 jobs last month. Fed Chair Janet Yellen remarked last week that the Central Bank would most likely raise rates this month if jobs and inflation data held up. Despite the jobs optimism, US stock index futures are trading in the red, with S&P 500 futures bouncing off support at 2360 overnight.


China Producer Prices Accelerate

In a growing indication of the impact of the ongoing Yuan depreciation, producer prices in China accelerated by the fastest rate since September of 2008 during the month of February after a pickup in demand extended the rally in prices of steel and other raw materials, boosting industrial profits. Data from the Chinese National Statistics Bureau released overnight showed that last month’s producer price index surged 7.80% on a year-over-year basis, compared to the 6.90% rise recorded in January compared to the consensus estimate of a 7.70% gain.

Consumer inflation, however, slowed more than forecast to its slowest pace in two years, reinforcing fears that the economy was still not on a solid footing. The consumer inflation rate slowed to 0.80% in February, printing well by the 1.70% increase projected by analysts. After touching the highest point in 2017 earlier in the session, USDCNH experienced a rapid plunge, finding support near 6.9050.


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