Oil Futures Erase Gains as Imports Fall and Exports Gain

Daily Analysis - 02/11/2017

US Crude Drawdown Comes in Smaller Relative to API Data

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Oil prices fell in a volatile session on Wednesday after weekly US government stockpile data showed the latest crude supplies draw was not as big as a widely-followed industry group had reported. Futures reached their highest point in more than two years in Wednesday trade as US exports and production continued to rise as imports fell.

Oil Bulls Attempt a Bounce-Back


The latest weekly report delivered by the US Energy Information Administration showed crude oil inventories in the country dipping by 2.435 million barrels last week, topping the 1.800 million barrel drawdown anticipated by analysts surveyed in a Reuters poll.

However, the figure came in short of the 5.10 million barrel contraction reported by the American Petroleum Institute late on Tuesday. Oil has been rallying in recent weeks, buoyed by signs that the Organization of the Petroleum Exporting Countries and a group of non-cartel member led by Russia will likely continue its output curb through 2018 during a meeting in Vienna scheduled for November 30th. US crude futures for December delivery climbed to as high as $55.21 a barrel in early Wednesday trade before ending the session substantially lower at $54.28 a barrel. Prices have recouped some of those losses on Thursday with futures last seen trending near $54.30 a barrel.

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Fed Opens Door to December


The US Federal Reserve remarked that the late-summer hurricanes are not expected to have a significant longer-term impact on economic activity in the country, indicating the Central Bank would not hold off from raising interest rates again soon. As was widely anticipated, the Federal Open Market Committee left its benchmark interest rate target unchanged on Wednesday. The Federal Reserve’s policymaking arm also maintained positive language on the current state of the economy, leading investors to believe that FOMC will be tightening policy again in December.

This was the second meeting since the widespread devastation caused by Hurricanes Harvey and Irma, which nonetheless has only had spotty impacts on macroeconomic data. The Fed has already increased rates twice this year as part of its efforts to normalize monetary policy. The dollar was mostly unmoved by the development, keeping the USDCHF pair stuck in a tight range around 1.0000.

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Stronger Domestic Demand Boosts UK Manufacturing


British manufacturers reported solid growth last month according to a leading industry survey, increasing the odds of the Bank of England lifting interest rates later in the session for the first time in a decade. The Markit/CIPS UK Manufacturing PMI rose to 56.3 in October compared to the higher revised 56.0 reported a month earlier. Markit highlighted domestic market as the primary source of new manufacturing orders.

However, growth in the consumer goods space dropped to a seven-month low amid an easing of new contracts. Most economists are now forecasting the Bank of England will hike the Bank Rate to 0.50% from a record-low 0.25% later in the session. Investors will also be eyeing the degree of unity among the Central Bank’s Monetary Policy Committee members as they ponder the likelihood of further increases. EURGBP is pulling back early Thursday after hitting a 4-1/2-month low during the prior session.

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Australia’s Economic Fortunes Receive Twin Boost


With approvals to construct new homes climbing to a seven-month peak in September alongside the longest stretch of trade surpluses in more than four decades, several promising omens for growth are emerging across the Australian economy. Thursday’s data from the Australian Bureau of Statistics showed the trade surplus doubled to AUD$1.75 billion ($1.35 billion) in September, easily topping market forecasts of AUD$1.20 billion.

Apart from marking the eleventh consecutive month of positive trade balances, the latest winning streak is the lengthiest recorded since the early 1970s. Total exports advanced 2.90% during the month, while imports edged 0.20% lower. Separate figures out Thursday showed building approvals defied gloomy chatter centred on the housing sector, advancing 1.50% in September and confounding projections calling for a -1.00% decline. AUDJPY is gaining in Thursday Asian trade to currently hover around 87.950.

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