Oil Prices Pullback After Sharp Rally

Daily Analysis - 06/09/2017

Crude Demand Remains Subdued Despite Pickup in Prices

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Oil prices slipped lower in early Wednesday morning trade as demand for crude remains subdued following the refinery closures that transpired after Hurricane Harvey hit the US Gulf coast ten days back. Brent crude oil futures has since pulled back from Tuesday highs to currently trend near $53.20 a barrel.

US Refineries Limping Back to Normalcy


Energy analysts reckon that even though many refineries and pipelines taken temporarily offline by Harvey were restarting operations, it would take a few more weeks before US oil infrastructure was back to full capacity. Reuters estimates suggest that about 3.800 million barrels of daily refining capacity, or nearly 20.00% of available volume, was shuttered, with many other facilities running at reduced processing rates.

Fuel storage data from the American Petroleum Institute due later should give a better view of the extent of Harvey’s impact on US fuel stockpiles. Official inventory figures from the US Energy Information Administration are scheduled for Thursday. Brent crude for November delivery rallied 2.00% a session earlier to end Tuesday at $53.38 per barrel - topping the $53-mark for the first time since May.

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US Factory Orders Record Biggest Decline in Nearly 3 Years


New orders for goods made in the United States posted their biggest drop in almost three years in July, hurt by a sharp decline in orders for civilian aircrafts. A Commerce Department report issued late on Tuesday revealed that factory orders fell -3.30% in July compared to a 3.20% gain a month earlier.

The July tumble was largely due to a -19.20% tumble in orders for the volatile transportation segment, with civilian aircraft orders plummeting -70.80% percent in July after witnessing a massive 129.30% increase during June. Excluding transportation, factory orders edged 0.50% higher in July after reporting a meagre 0.10% uptick in June. Manufacturing accounts for close to 12.00% of total US economic output. In the meantime, S&P 500 futures are gaining early Wednesday after dipping on Tuesday to last trade around the 2460-mark.

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Australian Economy Rebounds in During Second Quarter


The Australian economy shrugged off a weather-beaten start to the year, recording a major pickup in growth during the second quarter as surging business confidence and stronger exports buoyed the result. Gross domestic product grew by 0.80% on a quarterly basis and expanded by 1.80% from a year ago according to data released overnight.

The consensus forecast anticipated 0.90% growth for the quarter alongside 1.90% annualized increase. Driving the latest acceleration was a big increase in public investment, with government spending alone contributing 0.80 percentage points to second quarter expansion. Household consumption added 0.40 percentage points. Rising export volumes, mostly of liquefied natural gas, also supported the pick-up.  The Australian dollar dipped as low as to 86.690 against the Japanese Yen after investor projections for more elevated growth were disappointed.

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UK Services Activity Fades To 11-Month Low


Growth in the British services sector slipped to its slowest pace in 11 months in August.  The Markit UK Services Purchasing Managers’ Index fell to 53.2 from 53.8 in July amidst signs that the uncertainty surrounding Brexit negotiations continued to “undermine business confidence." Companies blamed tepid client demand and a cloudier economic outlook for the lack of strong growth. Growth in new orders slowed, with nervous clients delaying their spending decisions on “fragile business confidence.”

The survey data also revealed a sharp rise in costs for services firms, with the pace of price inflation climbing to the fastest in six months. Separate data from the Society of Motor Manufacturers and Traders showed new car registrations in the UK fell for the fifth straight month in August. EURGBP is currently perched above strong support at 0.9130.

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