Libyan Crude Oil Output Gains

Daily Analysis - 01/06/2017

Oil Prices Tumble Amid Production Uptick

Oil prices fell sharply on Wednesday to end the session at a three-week low after growing production offset an inventory report. Even though the American Petroleum Institute reported falling US stockpiles for an eighth straight week, a Reuters survey discovered that OPEC output rose in May on the back of climbing output from Libya and Nigeria.

Official Oil Inventory Figures on Tap

Investor sentiment was hurt after data showed Libyan output increased enough to lift monthly OPEC production for the first time in 2017. Brent crude marked its fifth straight monthly decline despite the extension of OPEC-led production cuts and expectations that US inventories would consequently fall. Data from the American Petroleum Institute showed crude stockpiles fell by -8.670 million barrels during the week ended May 26^th to 513.2 million barrels in storage compared to analyst expectations for a contraction of -2.500 million barrels.

The official US Energy Information Administration numbers are due Thursday, delayed by a day following Monday’s Memorial Day holiday. Brent futures for August delivery are mounting an upside rebound early Thursday to currently trade around the key resistance at $51.30 a barrel. However, any conclusive break below $50.00 could take prices all the way towards $48.00 per barrel over the medium-term.

US Pending Home Sales Dip

Contracts to buy existing homes in the US dropped for a second consecutive month in April amidst a supply squeeze according to data reported on Wednesday. The National Association of Realtors’ Pending Home Sales Index, which is based on contracts signed in the previous month, fell -1.30% to 109.8. Contracts decreased in the Northeast, South and Midwest, but soared 5.80% for the West.

On an annualized basis, the index was -3.30% lower in April, recording the first yearly decline since December of last year. Coming close on the heels of recent data that showed a dip in home building and sales of new homes, the decline in the number of contracts indicates a growing moderation in US housing activity. After briefly dipping to near a one-week low, Nasdaq futures have reversed higher, managing to retake the 5800 level.

Australian Retail Activity Mounts a Rebound

Retail sales in Australia bounced back sharply in April, following a weak, weather-affected start to the year. Data from the Australian Bureau of Statistics delivered early Thursday showed that real retail sales grew 1.00% last month, easily topping expectations of a gain of 0.30% and reversing from a revised -0.20% decline in March. The increased sales in April were largely on account of a turnaround in department stores, where sales jumped 2.50%, compared to a -0.60% drop in March.

The rebound should provide some relief to the Reserve Bank of Australia, which was worried that the excessive borrowing in the booming real estate sector could depress spending elsewhere in the economy. The Australian dollar gained immediately following the release, but has since retreated after tepid Chinese manufacturing figures hurt sentiment. The AUDUSD pair is currently edging higher after crossing back above 0.7400.

Canadian Growth Tops Forecasts

Economic activity in Canada experienced a robust acceleration during the first quarter, buoyed by a surge in business investment and higher consumer spending. GDP grew at an annualized pace of 3.70% according to figures compiled by Statistics Canada, marginally below economists' projections of 3.90% expansion. On a month-on-month basis, economic output rose a solid 0.50% in March, well above market expectations for a 0.20% increase.

First quarter growth was boosted by an uptick in business investment after companies spent more on industrial machinery and computers following a decline in spending during four of the previous five quarters. Meanwhile, consumer spending continued to rise, especially for vehicles while investment in residential property also lifted the economy amid strong demand for resale units. After a steep rally on Wednesday, EURCAD is currently trading flat, perched just below strong resistance at 1.5200.