Oil Prices Tumble Despite Inventory Draw

Daily Analysis - 15/06/2017

US Crude Futures Retreat Below $45.00 Per Barrel

Oil slumped on Wednesday and are down in early morning trade after an unexpected build in gasoline stockpiles tanked prices. West Texas Intermediate futures were last trading around $44.70 a barrel, sliding back below the key psychological level of $45.00.

Gas Demand Remains Tepid

After last week’s surprising inventory build, the latest US Energy Information Administration report underlined a resumption in the decline of oil stockpiles. Crude inventories dipped by 1.661 million barrels, missing expectations of a 2.739 million barrel drawdown. However, apart from the headline figure, the real fireworks transpired after the report highlighted a 2.096 million barrel increase in gasoline stockpiles for the week ending June 9^th.

The surprise build-up was the latest sign of persistently weak demand even as the summer driving season enters its peak. The four-week average gas consumption is currently -1.20% below the year-earlier level. In addition, US Sentiment was hurt further after the International Energy Agency suggested that growing US output will lead to supply growth surpassing demand growth in 2018. After breaking below $45.00 a barrel, WTI’s next stop could be $42.00, a level not seen since the middle of November.

US Inflation and Retail Activity Disappoint

The US dollar came under pressure early Wednesday after two key economic data points missed market expectations. Consumer prices grew at a year-over-year pace of 1.90% in May, sharply lower than the 2.20% annualized rate recorded a month earlier and missing projections of 2.00%. Core inflation, which excludes the volatile food and energy items, was up 1.70% compared to estimates that it would hold steady at 1.90%. Meanwhile, retail sales fell -0.30%, widely missing estimates of it remaining unchanged.

Excluding the volatile autos component, sales fell by the same margin, compared to expectations of a 0.10% pick-up. The greenback however bounced back from the lows of the session after the Federal Reserve hiked interest rates and said it would continue tightening monetary policy by gradually tapering the balance sheet. After significant volatility yesterday, EURUSD was last seen trending around the 1.1215-mark.

Euro Area Employment Growth Climbs

Data released by Eurostat on Wednesday indicated that Euro Area job gains accelerated during the first quarter to the fastest annualized pace of growth since before the 2008 financial crisis. Employment in the common currency bloc grew by 1.50% on the year. In absolute terms, 154.8 million people were employed during the first three months of the year, the highest number ever recorded.

The European Union’s statistics office also revised its figures for the fourth quarter to an annualized rate of 1.40%. This development will be welcomed by the European Central Bank as it considers a gradual tapering of accommodative policies after years of battling high unemployment. In a separate release, Eurostat reported year-on-year industrial output growth of 1.40% in April, slightly higher than forecasts of a 1.30% rise. CAC September futures are sitting close to the strong support around 5220 after falling most of Wednesday’s session.

New Zealand GDP Misses Forecast

New Zealand’s economy grew less than expected during the first three months of 2017 after construction activity shrank and dairy exports fell. Gross domestic product increased 0.50% during the quarter ended March 31^st according to Statistics New Zealand, up from a rate of 0.40% recorded in the prior quarter but below the median forecast of 0.70% expansion.

Sector-wise, construction activity fell for the first time since June of 2015, contracting by 1.00%. Agriculture however grew 4.30%, notching its fastest rate of gains since the third quarter of 2014. On a year-on-year basis, first quarter GDP rose 2.50%, decelerating from 2.70% in the previous quarter and below a median forecast that predicted a steady pace of activity. Following the disappointment, NZDUSD is falling in early Thursday trade to currently hover around 0.7225.