Oil Prices Rebound

Daily Analysis - 24/04/2017

US Crude Below $50.00 a Barrel

Oil prices rebounded from the lows of last week in early trade, buoyed by expectations that OPEC will extend its output cut deal to cover the remainder of the year. However, the relentless rise in US drilling pushed WTI crude futures below the key psychological level of $50.00 per barrel.

Energy Bears in Control

Oil prices tumbled last week, hit by the stubbornly high distillate supplies combined with rising US output reported by the EIA. US drillers added to their operational oil rigs for 14-straight weeks, extending an 11-month recovery that analysts say should result in a big jump in US shale production in May. Adding to the bearish pressure was the investor scepticism surrounding the efficacy of the OPEC-led production cuts.

Even after three months of curbs, OPEC has failed to meet its goal of pushing global supplies below the five-year historical average. Technical analysts reckon that having convincingly broken below $50.00 a barrel, US crude futures could very well slide all the way to $47.00, which presents the next visible support area. US crude for June delivery was last seen around the $49.90-mark.

US Private Sector Growth at 7-Month Low

According to data from IHS Markit, US private sector growth eased to a seven-month low in April amidst a loss of momentum in both services and manufacturing. A preliminary reading of the purchasing managers’ index (PMI) for manufacturing hit 52.8, compared to March’s 53.3, and below the 53.8 forecast by analysts polled by Bloomberg. The services sector PMI also slid to 52.5 versus last month’s 52.8, missing projections of 53.2.

The Composite PMI Output Index fell to 52.7 in April from the 53.0 recorded a month prior, representing the weakest pace of expansion in private sector activity since September of 2016. In the meantime, S&P 500 futures are trading just below the strong resistance at 2375, which also coincides with the highest level reached over the past month.

UK Retail Sales Record Significant Drop

Official data from Friday showed that UK retail sales posted their biggest decline in seven years during the first quarter as consumers cut back spending amid accelerating inflation. Figures compiled by the Office for National Statistics noted that the volume of retail sales contracted -1.40% in the first three months of 2017 after rising 0.80% during the fourth quarter.

It was the largest quarterly drop since the first quarter of 2010, and is likely to reinforce the view that household spending - the primary driver of British economy – has begun to slow sharply. In March alone, sales volumes shrank -1.80%, far exceeding the -0.50% dip forecast in a Reuters poll of economists. The GBPUSD pair is trending lower in early Monday trade, with the pair last seen back below 1.2800.

Canadian Inflation Cools

The annual inflation rate in Canada for March slowed sharply, pulling away from the Central Bank’s 2.00% target as food prices fell for the sixth straight month. The annual rate dropped to 1.60% in March from the prior month's 2.00%, Statistics Canada said, topping forecasts for a fall to 1.80%. Two of the three gauges of core inflation also rose at a slower pace versus the previous month, with the core CPI rate coming in lowest at 1.30%.

The Bank of Canada had dismissed the recent spike in inflation, saying it reflected temporary factors, adding to the sense that the Central Bank will refrain from any near-term action after slashing rates twice in 2015 to cushion the economy against the then oil supply glut. Following the data, the Canadian dollar immediately weakened against the greenback, with USDCAD currently hovering around 1.3470.