US Oil Drill Rig Count Surges

Daily Analysis - 23/01/2017

OPEC Cuts Lead Towards Resurgent US Crude Production

Formerly embattled US oil producers are storming back to business, taking advantage of higher crude prices to restart shuttered projects. Although OPEC still has not hit its target thanks to slower progress from Venezuela and Iraq, a rising rig count in the United States is likely going to foreshadow significantly higher output over the next few months.

US Rig Count Records Biggest Gain Since 2013

With prices still trending above $50.00 per barrel, US oil producers are using the opportunity to restore shuttered production as evidenced by the latest rig count data available from oil services giant Baker Hughes. According to the weekly rig figure, producers added 29 rigs last week, marking the largest advance in the figure since April of 2013. The gains in the number of active drill rigs is likely to be accompanied by rising output over the coming weeks and months as exploration and production companies use the futures market to hedge production costs for the foreseeable future.

Meanwhile, despite OPEC’s progress in reaching its output cut goals, Venezuela and Iraq have yet to hit desired quotas. Although there has not been a penalty levied on these producers, it does highlight ongoing delays in reaching targets. After gaining ground Friday, WTI for March delivery is under pressure, trending back below $53.00.

Trump Address Sparks Few Fireworks

Financial markets continue to treat US President Donald Trump’s language with considerable uncertainty and anxiety as the businessman turned politician enters his first week as an elected official. Although stock futures managed to gain modestly on Friday, they have since come under pressure as Trump takes this week to outline his policy proposals with respect to taxes and trade. In a likely reflection of his negotiating style, there are likely to be few details released ahead of official announcements.

Since the positive Friday performance, stock futures are back on the retreat, with losses in the Nasdaq outpacing weakness in the S&P 500. More importantly, Trump’s comments were enough to drive the dollar to a 7-week low, with the US dollar continuing to give up ground in early Monday trade, helping extend gains in silver prices.

Canadian Inflation Complicates Outlook for Officials

Despite highlighting concerns about tepid inflation during last week’s interest rate decision, policymakers are relieved to a degree by the most recent annualized figures which showed both core and headline consumer prices continuing to rise. Core CPI jumped from 1.50% to 1.60% while the non-core figure rose to 1.50% from 1.20% reported during November. Nevertheless, annualized optimism gave way to a more pessimistic short-term view.

On a monthly basis, both the core and headline consumer price indices contracted by -0.30% and -0.20% respectively. Although it represented a narrowing of the losses compared to a month earlier, it still underscores the difficulty facing policymakers as they work to restore inflation and growth to the economy. Despite the approaching negotiations regarding the North American Free Trade Agreement, the Canadian dollar is back on the climb as the dollar selloff sends peers higher.

Draghi Raises Possible Way To Exit Eurozone

In a stunning development, President Mario Draghi of the European Central Bank has explained the process of a member of the European Monetary Union to leave the currency bloc. In a letter address to two members of the European Parliament which was later released, Draghi highlighted that a country may in fact leave the Eurozone.

However, pursuant to this point, he also elaborated that a country must go ahead and settle all its payments owed through the Target 2 payments systems to other member nations before taking such steps. After years of pledging to do whatever it takes to maintain the integrity of the Euro Area, these latest comments mark a significant departure from earlier strategies and underlines the potential for certain members to begin paving the way towards an exit. The Euro remained unfazed by the development, extending gains against the US dollar.