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Oil Prices Slip to Lowest Since November

Daily Analysis - 23/03/2017

US Crude Inventories Swell to New Record High

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Oil prices recovered significantly from earlier losses on Wednesday after tumbling to an almost four-month low following the latest EIA production and inventory figures. Data continued to display a growing stockpile glut amid a pickup in US output.

Supply Concerns Embolden Energy Bears


Weekly data produced by the US Energy Information Administration showed crude oil stockpiles climbing by close to 5 million barrels during the latest reading, bringing the grand total to 533.10 million last week.  Besides easily outpacing the consensus expectation of an increase of 2.80 million barrels, stockpiles have risen to a fresh record. A deal between OPEC and some other major producers to cut output by 1.80 million barrels per day until June has done little to deplete the bulging global oil inventories.

According to several leading media outlets, OPEC is leaning toward extending the cuts beyond June. However, analysts remain sceptical considering OPEC has broadly delivered on its pledged reductions, while non-OPEC countries, which are yet to fully comply with commitments, remain the major source of the spurt in supplies. May WTI futures have reversed from the lows of around $47.10, and are trading at $48.20 per barrel.

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US Existing Home Sales Dip


In a growing sign higher mortgage costs are starting to impact housing fundamentals, sales of previously owned homes in the United States fell by -3.70% month-on-month to a seasonally adjusted annual pace of 5.48 million in February. Economists surveyed by Reuters had projected sales shrinking by -2.00% to a rate of 5.57 million units last month. Notably, sales were up 5.40% from a year ago, underscoring the strength in the housing recovery despite rising mortgage rates.

While the number of houses up for sales rose by 4.20% to 1.75 million units in February, inventory stayed close to the record low of 1.65 million units reported in December of 2016.  After tumbling earlier in the week on the back of political uncertainty related to healthcare, Nasdaq futures managed to rebound modestly on Wednesday, extending gains in early Thursday trade.

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Dutch Personal Spending Edges Higher


The broad improvements in Dutch fundamentals have continued to accelerate as evidenced by the latest spending figures.   Household consumption in the Netherlands increased 2.70% year-over-year in January compared to the 2.50% gain posted in December. Household spending on food, beverages and tobacco increased the most, surging from -1.80% in December to 2.10% in January. However, durable goods consumption decelerated to 5.00% while spending on services grew at 1.20%, down from the 1.70% recorded in the final month of last year.

Nevertheless, Dutch GDP recorded the fastest pace since 2007, reaching 2.10% expansion last year alongside unemployment falling to 5.30% as more people entered the workforce amidst the strong recovery in the housing market. EURUSD is rising in early Thursday trade after ending in the red during the prior session, with the pair currently hovering below 1.0800.

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New Zealand Holds Rates Steady


The Reserve Bank of New Zealand, as was widely expected, kept its official cash rate unchanged at a record low of 1.75%. This was the fourth straight monetary policy meet in which the key rate was kept unchanged. Policymakers at the Central Bank emphasized that headline inflation had returned to the target band as last year’s declines in crude oil prices trickled out of the annual calculation. Also a matter of concern was the weaker than anticipated GDP growth during the December quarter.

Officials also reiterated that monetary policy will likely remain accommodative for the foreseeable future amid the numerous uncertainties on the global front. However, in one positive development, dairy prices managed to rebound modestly, climbing 1.70% during the latest reading after prices plunged -6.30% one measuring period earlier.  NZDUSD has been rallying following the news, with the pair hanging just below the 0.7050-mark.

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