US Crude Stockpiles Notch Additional Gains

Daily Analysis - 29/12/2016

API Reports Another Surprising Inventory Climb

With the OPEC and non-OPEC production freeze set to begin in just a matter of days, the latest data on US inventories and production figures due later in the session may quickly end oil’s recent winning streak. After one of the best rallies in 7-years, concerns about the deal implementation continue to hang over oil markets.

Oil Prices Fall After Inventories Rise

After last week’s surprising inventory climb reported by the Energy Information Administration, data released by the American Petroleum Institute on Wednesday displayed further gains. According to the advance figures, US onshore inventories rose by 4.200 million barrels last week despite expectations that stockpiles would fall by -1.500 million barrels. Crude oil in storage at Cushing also rose, climbing 528,000 barrels last week, beating forecasts of 500,000 additional barrels and marking increases in four of the last five weeks.

WTI futures fell nearly $0.90 after the announcement, trending back below $54.00 per barrel ahead of Thursday’s official data from the EIA. The biggest question looming over the market is whether shale production will continue to rise and if the OPEC deal implementation will be successful or face threats from noncompliant members. Crude for February delivery has recovered all the prior session’s losses, retaking the $54.00 level.

US Pending Home Sales Fall to 10-Month Low

Adding to the unevenness of recent housing data were the latest pending home sales figures reported by the National Association of Realtors on Wednesday. Per the industry group, signed contracts for housing transactions that have not yet closed fell by -0.40% on an annualized basis, reaching the lowest levels since February. On a monthly basis, sales fell -2.50% compared to forecasts of a 0.50% gain and the 0.10% growth reported in October.

Although existing home sales have continued to rise after evidenced by last week’s print which brought the figure to the highest point since 2007, the recent rate hike combined with the perception that more may be in the pipeline means that the rally in housing fundamentals may be approaching a reversal point. After flirting with the 20,000 once more on Wednesday, Dow futures are on the retreat, extending the index’s steepest loss in months.

Russia Factory Activity Expansion:

Amid a brightening outlook in the energy patch combined with improving economic fundamentals, the latest Russian manufacturing purchasing managers’ index came in stronger than expected. The PMI for December reported by Markit Economics came in at 53.7, slightly higher than 53.6 print back in November while marking the fastest pace of expansion in 69 months. Part of the gains are attributed to rebounding orders which contracted at the slowest rate in 40 months and strong job creation metrics.

Despite the possibility of additional sanctions following the US accusation of election tampering, the Russian economy continues to shake of contractionary economic activity after years of European and American sanctions. Despite a significant strengthening in the US dollar over the last few weeks, the Ruble has surprisingly climbed, reaching the highest point since July of 2015 earlier in the session.

Norway Retail Sales Eke Out Small Gains

Retail figures in Norway managed to extend October’s gains in the latest reading, with annualized retail consumption climbing 0.40% through the end of November. Aside from being the best print since May, it is giving hope to officials that fortunes may finally be shifting after a significant downturn brought on by the energy sector. The gains were driven primarily by increased purchases of food, beverages, and tobacco despite information and communications equipment purchases remaining a significant drag on the upside momentum.

Although the economy contracted during the third quarter, a further improvement in other fundamentals that leads to a pickup in growth could see the Norwegian Central Bank consider raising rates during the first half of 2017 to cool inflation. In the meantime, the Norwegian Krone is slightly higher against the US dollar in early European trade.