Oil Prices Extend Gains

Daily Analysis - 11/05/2017

US Crude Stockpiles Continue to Fall

oil-up


Oil prices are surging in early Thursday trade after official data from the Department of Energy showed another steep decline in US onshore crude inventories. The sentiment was also lifted by a more severe than expected cut in Saudi Arabian supplies to Asia, which should further tighten the supply scenario despite lacking growth demand.

WTI Trying to Reclaim $50


US crude stocks recorded their largest one-week drawdown since December of last year after imports fell sharply. Crude oil inventories declined by -5.247 million barrels during the week ending May 5th according to data released by the US Energy Information Administration on Wednesday. Separately, Saudi Arabia, has informed several refiners in Asia of its first cuts in crude allocations since the OPEC deal to reduce output took effect in January.

Reuters is reporting that state-owned Saudi Aramco will curb oil supplies to Asian customers by almost 7 million barrels beginning next month. US crude June futures were last seen around $47.80 with analysts predicting that a decisive break above strong resistance around $48.00 per barrel could spur a climb back to the key psychological level of $50.00.

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US Import Prices Rise


In another sign that inflation growth is likely to persist, US import prices gained more than expected in April amid increasing costs for petroleum products. Figures released by the Labor Department late on Wednesday showed that import prices soared 0.50% last month following the upwardly revised 0.10% gain in March, rising for the fifth straight month. Economists surveyed by Reuters had projected a 0.20% increase in import prices for April.

Last month, prices for imported petroleum rallied 1.60% after dipping 0.40% in March. Excluding petroleum, import prices gained 0.40%, marking the biggest increase since July of last year. Economists reckon if the rising trend in underlying import prices continue, it would help build the Federal Reserve’s tightening case. In the meantime, Dow futures are largely range bound after falling in the previous session, with the benchmark currently hovering just below 20900.

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New Zealand Keeps Rate Steady


New Zealand’s central bank held the benchmark interest rate at a record low and forecast it will remain there for an extended period, citing “numerous uncertainties.” The Reserve Bank of New Zealand left the official cash rate at 1.75%, with Governor Graeme Wheeler projecting an inflation deceleration to 1.10% in the first quarter of 2018. Any premature monetary policy tightening could undermine growth, he added.

All 26 economists surveyed by Reuters are forecasting that rates will remain stable throughout 2017. Inflation had returned to the midpoint of the central bank’s 1.00-3.00% target band during the first quarter - the first time in over five years. Wheeler’s more dovish attitude sent the New Zealand dollar tumbling against the US dollar, with NZDUSD last seen rebounding from key support at 0.6820 to just below 0.6860.

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Japan Current Account Surplus Tops Forecast


Adding moderately to overall confidence, Japan reported a stronger than expected current account surplus in March on the back of strong income from overseas investments, continuing its run of uninterrupted monthly surpluses for close to three years. The surplus came in at JPY 2.91 trillion ($25.45 billion), marking the 33rd consecutive month in the black, and beating the consensus forecast for a surplus of around JPY 2.643 trillion.

The primary income balance stood at JPY 2.2 trillion in March, boosted by increased profits from foreign direct investments. Japan's export-driven economy has been undergoing a modest recovery since Prime Minister Shinzo Abe took office in late 2012. A recent pick-up in overseas demand has helped lift exports, pushing business confidence to its highest level in more than a year. The positive news has seen only a limited response in the Yen, with AUDJPY flat in early Thursday trade around 84.120.

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