Oil Prices Slip to New Lows

Daily Analysis - 12/01/2016

Key Oil Benchmarks Dip Below $31 Per Barrel

Oil continues to decline as the supply imbalance grows and demand plunges from the world’s biggest energy consumer. Geopolitical tensions between OPEC major producers and the dollar gaining in strength are also weighing on the outlook ahead of the API and EIA reports on weekly crude oil stocks.

Oil Tumble Mirrors Losses in China

Although equities are trading modestly positive, the Chinese stock market plummet in the prior session to start the 2^nd week of 2016 sent oil moving lower in parallel, signaling concerns for the world’s biggest energy user. West Texas Intermediate dropped as low as $30.41 with Brent echoing the slide to $30.42 in early trading, indicating a further downside continuation for both benchmarks. According to the International Energy Agency, consumption in China is estimated to be around 11.30 million barrels a day for 2015. As fears of onshore storage constraints come to fruition with the market dealing with chronic oversupply, the slowdown in global demand and weak economic activity from China might invariably push prices for oil and other commodities even further down. Analysts reported a major contraction in China’s demand for oil, shrinking by -4.90% in November and -2.00% on an annualized basis.

Swiss Retail Sales Dive

The Swiss Federal Statistical Office reported yearly Retail Sales, through the month of November, have contracted -3.10% compared to October’s revised contraction of -0.60%, widely missing expectations of a minor expansion of 0.30%. For the month before Christmas amid November’s black Friday, sales for clothing and footwear sunk by -10.20%. Fuels alongside food, drink, and tobacco also declined, falling by -7.50% and -1.80% respectively. According to recent analysis, despite deflation gripping the economy, the past 12-months have seen Switzerland become 10.00% more expensive with respect to shopping and holidays. Ever since the Swiss National Bank dropped the hard peg versus the Euro and moved to a soft peg there have been concerns surrounding the impact on tourism and consumers businesses. Upon the announcement, the Swiss Franc weakened versus the US dollar, sending the pair to 0.9987.

Spanish Industrial Output Momentum Climbs

The Spanish economy, the fourth largest economy in the monetary union, is experienced sustained growth at a moderate pace, aided by lower energy prices, improving unemployment and stronger financial conditions. Spain showed another month of strong gains in November with industrial output topping 4.20% growth on an annualized basis. Last month’s annual growth was revised at 4.10%. The improvement in the economy is helping in the Spanish industry and services to gain in strength. Consumer goods output climbed 4.00% and capital goods production surged to 9.30%. The increase in intermediate goods output came in at 4.30%. Declines were only reported to be from energy down by 2.50%. Analysts are keeping an eye out on the Euro Area’s industrial production data due mid-week as signs show the region continuing to improve amid accommodative monetary policy measures. The Euro continues to strengthen moderately versus peers, especially the Pound.

Canadian Housing Starts Fall

The Canada Mortgage and Housing Corporation reported housing starts declining to just 173,000 in December from November’s revised 212,000. According to CMHC Chief Economist Bob Dugan, the decline was mainly attributed to be urban starts having dropped by -19.10% while the multi-unit sector fell by a staggering -27.00%. The slowdown is considered normal and usual as it occurs in the final month of the year with seasonal weather conditions preventing construction in many parts of the country. Nevertheless, efforts by the Bank of Canada to keep rates low for borrowing have helped boost the economy and insulate from losses in the oil patch. However, recent economic data suggests that the Bank of Canada may proceed with additional rate cuts, sending the key rate back to record lows of 0.25%. Governor Poloz stated last week that policymakers should start to facilitate necessary adjustments in order to help accelerate growth.