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Oil Manages to Rebound from 10-Month Low

Daily Analysis - 25/06/2017

Confluence of Factors Drive Crude Futures Lower Despite Growing Political Risks

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Since the OPEC decision to extend output cuts back in May, oil prices have been on a relatively steady descent.  Even amid record deal compliance, the surge in US output has surprised other major global producers, especially after production reached a fresh cycle highs according to the latest data from the Energy Information Administration.

Last Week


Oil experienced more than a few volatile sessions last week after stockpile data and jawboning from the Middle East saw prices whipsaw.  Even with tensions between Iran and Saudi Arabia climbing, political risks took a backseat to tepid demand fundamentals and growing supply.  US output continues to climb alongside recovering Nigerian and Libyan output, offsetting the OPEC production deal efforts.  Furthermore, should prices remain under pressure, it could thwart any tightening efforts by major global central banks.

Apart from oil volatility, the Pound also experienced a dramatic week.  The more hawkish bent from Bank of England Chief Economist Andrew Haldane contrasted sharply with the dovish viewpoint of Governor Mark Carney.  Supporting the more hawkish viewpoint is inflation outstripping wage growth alongside manufacturing orders at the highest level since 1988.  Mirroring the BoE, Federal Reserve officials also issued conflicting viewpoints on the outlook for policy.  However, in a positive sign, both existing and new home sales rose during May, alleviating fears of an imminent housing sector correction.  To cap off the week, the Reserve Bank of New Zealand kept interest rates on hold, citing spare capacity and an uncertain inflation outlook as a rationale for maintaining accommodation for the foreseeable future.

 

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The Week Ahead


A busy data-filled week lies ahead for global financial markets, with GDP and inflation figures at the top of the list.  To start off, the US will be announcing the final reading of first quarter GDP, with growth forecast to come in at 1.20%.  Core durable goods orders due out early in the week are expected to come in mixed, with the consensus estimating a month over month decline in the headline figure and a rebounding core figure.  To round out recent housing data, pending home sales and the S&P Case-Shiller Home Price Index Composite will also be released.  Switching gears, Japanese inflation numbers are set to be published, with core CPI expected to rise to 0.40% from 0.30%.  Any strengthening is unlikely to result in any near-term policy adjustments as evidenced by comments from the Bank of Japan Deputy Governor last week.

Meanwhile, the nation’s unemployment rate projected to remain on hold at 2.80% while household spending sustains monthly gains.  The Euro Area is also set to report on inflation, with the annualized headline and core figures predicted to display continued deceleration in consumer price growth.  The UK will round out the week, with the final reading of first quarter GDP expected to match earlier figures of 2.00% annualized growth and 0.20% quarterly expansion.

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