Oil Futures Gain Back Ground

Daily Analysis - 12/07/2017

Crude Prices Climb After API Reports Falling US Stockpiles

Oil prices extended their gains from the prior session following a US government move that slashed its production outlook for next year while stockpiles plunged. Oil has been stuck below $50.00 a barrel since May amid investor concern that rising supplies will offset output cuts by the Organization of Petroleum Exporting Countries.

API Report Exposes Enormous Crude Drawdown

Amid expectations of sustained US oil production growth, the US Energy Information Administration revised its forecasts for an output increase to 9.900 million barrels a day in 2018 from 9.300 million bpd this year, a gain of 570,000 bpd. This was below last month's forecast of a year-over-year increase of 680,000 bpd. Adding to the bullish sentiment was data from the American Petroleum Institute, which indicated that US crude inventories dropped by a massive 8.100 million barrels in the week ended July 7^th to 495.5 million barrels.

However, reports revealing that Saudi Arabia produced more than 10.000 million bpd last month, exceeding its output quota, may hurt the fragile OPEC equilibrium ahead of today’s monthly report. Brent crude futures for September delivery are currently trading around $48.15 a barrel, with prices likely to encounter strong resistance near $48.80.

US Inventories Record Biggest Gain in 5 Months

Wholesale inventories in the United States climbed more than previously projected in May as automobile stockpiles rose amid dipping sales. Figures compiled by the Commerce Department exposed a 0.40% increase in wholesale inventories - the largest gain since December 2016 - following a -0.40% decline in April.

Data released last month showed wholesale inventories rose 0.30% in May, with auto inventories climbing 0.70% after slipping -1.40% in April. The auto sector has reported a significant slowdown in demand, which has seen manufacturers posting a slump in sales for four consecutive months despite significant incentives from dealerships. Inventories have been an important contributor to GDP growth for the past two quarters but have remained lean the last few months, hurt by sluggish domestic demand. With little in the way of other data, Dow futures remain range-bound, with the index last seen around the 21370-mark.

Australian Consumer Pessimism Spreads

A measure of consumer sentiment in Australia edged marginally higher in July after three straight months of declines, as pessimists continue to remain the dominant group despite recent signs of economic improvements. A survey of 1,200 people conducted by Westpac Bank found consumer sentiment rose just 0.40% from June when it recorded a -1.80% drop.

On a yearly basis, the consumer sentiment index has fallen by -2.50%, staying below the key level of 100, which signifies pessimists outnumbering optimists. The discouraging outlook for consumer spending is in stark contrast to data released yesterday that showed business confidence reaching its highest peak since early 2008. Historically, business confidence has shown to have a far closer correlation to economic activity than consumer sentiment. AUDJPY is down in Wednesday morning trade to currently hover around 86.750.

Canada Housing Starts Rise Despite More Restrictive Measures

Even after the implementation of tighter federal and provincial rules to cool the booming sector, data from the Canada Mortgage and Housing Corp showed that housing starts increased more than forecast in June. The main driver behind the gains was construction plans in Ontario which remained strong as policymakers increase their efforts to contain a growing property bubble.

Starts gained 9.10% to a seasonally adjusted annual pace of 212,695 units, topping the 200,000 annual rate forecasted by economists at the Royal Bank of Canada. The June figures suggest a strong rebound in housing, buoyed by increased activity across Ontario, the country's most populous province. Ontario starts surged 47.00%, while those in Quebec jumped 30.00%. EURCAD is modestly lower early in the European session to last trade below 1.4800 after reversing from strong resistance at 1.4830.