Oil Prices Tumble

Daily Analysis - 20/04/2017

WTI Crude Threatens to Breach $50


After a tremendous run, oil prices slid to a two-week low on Wednesday, hurt by a surprise build-up in US gasoline stocks. WTI crude futures hit an intraday low of $50.50 per barrel, coming perilously close to breaking below the key psychological level of $50.00 before rebounding modestly.

Energy Sentiment Rapidly Turning Bearish

In its weekly stockpile report, the US Energy Information Administration announced that crude supplies fell by a bigger-than-expected 1.034 million barrels during the week ended April 14th. However, gasoline stocks increased by 1.542 million barrels, defying the consensus forecast of a 1.938 million barrel decline. Last session’s outsized price slide comes weeks before OPEC and other key global producers meet to decide on whether to back an extension of the ongoing production cuts.

Analysts reckon that $50.00 is the key level to watch out, not just for its technical ramifications, but also because some shale producers may ramp up production on any dip below, which could weigh further on prices. US crude futures for June were last seen above $51.00 a barrel, boosted by a bout of short covering despite the short-term trend appearing increasingly bearish.


Federal Reserve Underscores Modest US Growth

The Beige Book, a report published by the Federal Reserve 8 times annually, highlighted that the US economy continued to grow at a modest pace in recent weeks as a tighter labor market helped spread out wage gains, even amid mixed consumer spending. The economic report, which was based on information collected from the 12 Federal Reserve districts from the middle of February through the end March, showed household purchases excluding automobiles were soft even as disposable income rose.

Overall, the report painted a picture of an economy that was maintaining its steady expansion, which should explain the recent pick-up in both consumer and business confidence. Dow futures spent the entire session under pressure, falling to the lowest point since February 13th as shares of IBM dragged heavily on performance.


Japan Exports Surge in March

According to official data released overnight by the Ministry of Finance, Japanese exports surged their most in more than two years in March. Exports grew by 12.00% last month on a year-on-year basis to JPY 7.2 trillion ($66.12 billion). This was the fourth straight monthly gain, and easily topped the 6.90% rise projected by economists surveyed.

The stronger than expected figure further confirms the view that Japanese economic activity is steadily gaining momentum. Earlier in the week, the International Monetary Fund lifted its economic outlook for Japan, forecasting 1.20% annualized expansion this year compared with the January projection of 0.80%. Meanwhile, imports grew 15.80% to JPY 6.6 trillion, largely due to higher oil prices and coal purchases. After a steep period of decline, USDJPY is largely unchanged in early morning trade after finding support near 108.400 over the last few sessions.


South African Inflation at 6-Month Low

After a steep dip in the Rand spiked consumer prices late last year, South Africa’s inflation rate slid to a six-month low in March as food prices climbed at their slowest pace in 13-months. Consumer price inflation eased to 6.10% last month from 6.30% in February, Statistics South Africa reported on Wednesday. The median estimate of economists polled by Bloomberg was for a reading of 6.30% year over year price growth. On a monthly basis, inflation fell to 0.60% in March from 1.10%.

The larger than anticipated drop in inflation has increased the likelihood of the Central Bank leaving interest rates on hold despite the recent shocks to the Rand. The Monetary Policy Committee has left the benchmark rate steady since last March after hiking it by 200 basis points over the prior two years. USDZAR is down in early Thursday trade, with pair currently hovering above 13.2000.


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