Oil Futures Near 3-Week Highs

Daily Analysis - 18/05/2017

US Crude Inventories Fall as Production Experiences First Pullback in Months

oil-price-rises


Oil prices notched additional gains on Wednesday after official data showed that US crude stockpiles fell for the sixth straight measuring period last week. Stocks of gasoline and distillates also dropped, adding to optimism that the oversupply conditions that have plagued the energy market are gradually appearing to ease.

Energy Supply Glut Easing


The latest US Energy Information Administration storage report delivered on Wednesday showed that crude inventories declined by 1.753 million barrels for the week ended May 12th compared to projections of a 2.360 million barrel decrease. Crude stocks have been falling after hitting a record high of 535.5 million during the last week of March. Total inventories now stand at 520.8 million barrels, 3.00% below those highs.

The EIA also reported a dip in gasoline stockpiles by 413,000 barrels, while distillate stocks fell 1.944 million barrels last week, adding to notion that the supply overhang is slowly fading. The big news was that after 14-straight weeks of production gains, daily output fell to 9.305 million barrels per day last week, contrasting sharply with the 17-weeks of gains in the rig count.  The benchmark Brent July futures are currently perched just above the strong support at $52.00 a barrel.

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Japan Extends GDP Growth Run


The Japanese economy grew for the fifth straight quarter, notching its longest streak of expansion in a decade and buoyed in large part by continued strength in exports. Gross domestic product increased by an annualized 2.20% in the three months to March, accelerating from a revised 1.40% reported during the previous quarter.

The preliminary first quarter reading compared with a Reuters median estimate for a 1.70% growth whereas on a quarterly basis, the economy grew by 0.50% against a 0.40% rise forecast by economists. Net exports added 0.10 percentage point to the GDP figure, while private consumption, which accounts for roughly 60.00% of the economy, gained 0.40% during the first quarter. Business spending also rose 0.20% from the previous three months. After a steep selloff on Wednesday EURJPY is gaining ground following the GDP figures, with the pair last seen around 123.750.

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Euro Area Inflation Hits ECB Target


Headline inflation in the Eurozone rebounded to 1.90% in April from 1.50% in March, in-line with the European Central Bank’s target of close to, but below, 2.00% inflation. During the same period last year, the consumer price index stood at 0.20% according to data released by Eurostat.  The biggest drivers of the headline figure were gains in transportation fuel costs, holiday packages, and heating oil which increased by 11.20%, 9.80%, and 21.20% respectively.

Meanwhile, telecommunications and garments contributed negatively to the index. Apart from the headline figure, the core rate of inflation, which excludes volatile items like food and energy, was confirmed at 1.20%. Sentiment towards the Euro has improved markedly following the 0.50% quarterly GDP gain reported on Tuesday. After breaking above strong resistance at 1.1100 on Wednesday and hitting a new multi-month high overnight, EURUSD momentum is pulling back, with the pair trending near 1.1135.

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Retail Activity in South Africa Climbs


After declining -1.60% in February, data from the Statistics South Africa showed that retail sales grew 0.80% year-over-year in March, beating analyst expectations of -0.70% yearly contraction by a wide margin. On a monthly basis, sales edged 0.30% higher in March, however, in the three months to March, the figure came in 1.00% lower versus the same period last year.

The better than expected retail sales numbers come close on the heels of data showing strength in the critical mining sector, which economists reckon should help prevent the country from slipping in to recession this year. However, apart from the gains in mining, other areas of economic activity remain anaemic, especially as high inflation cuts into spending.  The South African Rand is rallying against the US dollar in early Thursday trade, with the pair currently hovering around 13.2800.

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