Oil Stumbles Prior to Stockpiles Report

Daily Analysis - 06/07/2017

Crude Futures Turn Back After 8-Day Rally

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Crude Oil saw its steepest drop in price in one month Wednesday, turning back after its longest winning streak in 7-years. Market sentiment fell into bearish territory after reports that Russia has refused to participate in any further caps in production, denting OPEC attempts to turn back a continued oil glut.

Crude Oversupply Set to Continue


Brent Futures lost nearly -4.00% Wednesday following a report by Bloomberg that Russian officials have ruled out the possibility of further cutting oil production. The country, along with OPEC, agreed in May to extend a pact to cap oil output until the first three months of 2018, further propping up prices.

In addition to the news about Russia, bears on energy futures were also vindicated by data from OPEC that showed oil exports climbing by 450,000 barrels to reach 25.92 million barrels per day in June. Brent futures rebounded Thursday to set near the $48.30 per barrel mark, although prices remain on a downward swing in the medium run. Strong support has formed at $47.50, with a slide below that line potentially pushing Brent as low as $46.00 a barrel.

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Factory Output in US Tallies Second Decline in Two Months


A report from the Department of Commerce on Wednesday showed that orders for US factories dropped by more than anticipated in May. Regardless, capital equipment orders were stronger than originally estimated, showing that the country’s manufacturing sector continues to grow moderately. New orders for domestic-made goods contracted by -0.80% in May, well-below estimates calling for a -0.50% pullback, and below the -0.30% revised fall for April.

The report had some positive spots, as new orders increased by 4.80% year over year. The Department of Commerce report also showed that demand for non-defense capital goods—a strong indicator of business expenditures—expanded by 0.20% in May, an improvement over the -0.20% contraction experienced a month prior. After rebounding Wednesday, the Nasdaq equity benchmark gave back ground on Thursday following a strong rally, with the index most recently trending near 5635.

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Euro Area Retail Sales Hit Fourth Consecutive Month of Gains


In a positive indicator for consumer price growth and wider economic momentum, retail sales in the Eurozone expanded by more than expected in May, boosted by strong results for clothing and shoes. Per Eurostat, sales expanded by 0.40% month over month, beating consensus estimates of 0.30%. Non-food item sales expanded 0.60%, even as drinks, food, and tobacco contracted -0.40% during the period.

Consumer expenditures remained most robust in Belgium, Latvia and Estonia, while sales shrank in Malta and Finland. Relative to 2016, retail sales stayed static at 2.60%. The European Union Statistics Office also revised its readings for April up to 2.60% from earlier prints of 2.50%. The EURCHF pair slid following the report before reversing higher from a key support line at 1.0930 ahead of the European market open.

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Australian Trade Balance Widens as Effects of Cyclone Fade


Following an underwhelming reading in April, Australia’s trade balance rallied strongly in May, supported by larger shipments of coal that had previously been cut off due to Cyclone Debbie. Per the Australian Bureau of Statistics, the country’s trade surplus soared to AUD2.47 billion ($1.88 billion), better than the downward revision of AUD 90 million for April. A Reuters economists’ poll had a consensus estimate of roughly AUD 1.1 billion.

Overall, exports surged by 8.50% as imports gained 0.70%. Exports of coal skyrocketed by a surprising 62.00% as miners rushed to normalize shipments after the deep impact of Cyclone Debbie. A strong surplus, alongside optimistic reports on consumer expenditures, is a good omen for Australia’s economy, potentially pointing to a recovery in growth after an underwhelming first-quarter GDP reading. The EURAUD pair fell Thursday morning, with the currency pair last trading near 1.4930.

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