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Oil Gains for Third Consecutive Week – Despite Weak Fundamentals

Oil Gains for Third Consecutive Week – Despite Weak Fundamentals

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WTI crude oil futures for June delivery settled at $43.72 a barrel on Friday, posting a third straight week of gains on upbeat market sentiment as investments start pouring back into the oil & energy sectors. WTI crude oil gained 8.50% last week despite starting the week on a bearish note, slipping over 5.0% on Monday, April 18th. The weekly US crude oil inventories showed a buildup of 2.10 million barrels, slightly below forecasts of 2.20 million.

Weekly Review

The markets were mixed this week as the initial risk off sentiment led by the failed Doha talks last Sunday saw the markets open weaker on Monday. But it was only a matter of time before the markets recovered as oil prices managed to reverse and turn strongly higher. The risk on rally sent the US equity markets higher as the Dow Jones Industrial Average briefly traded near the 18,000 handle.Economic data was also mixed, especially in the US. Housing starts and building permits fell 8.80% and 7.70% respectively. However, existing home sales managed to rise 5.10%, beating estimates of an increase of only 3.90%. The US dollar was trading weaker in the first part of the week before managing to trim its losses by Thursday.

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The Week Ahead

The week ahead will see a crucial 12-hour period where the US Federal Reserve, the Reserve Bank of New Zealand and the Bank of Japan will be meeting. No changes are expected from the Federal Reserve which will be holding the Fed funds rate steady at 0.25% - 0.50% and the RBNZ is also widely expected to keep its interest rates unchanged at 2.25%, following last month’s 25bps rate. The Bank of Japan will however keep the markets guessing. With the recent rally in the Japanese yen and the following verbal rhetoric from BoJ and government officials, the majority of analysts expect the BoJ to ease its monetary policy this week. On Friday, the yen slipped strongly after reports emerged that the Bank of Japan was likely to introduce negative rates on its lending program for banks. It currently stands at zero percent and the implementation of negative rates is being seen by some as an effort by the BoJ to boost lending.

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