Weekly Report Monday 12 June 2017 – Friday 16 June 2017
Crude Oil remained under strong pressure and ended the fourth straight week in red. WTI oil contract for July delivery was down around 2.3% for the week, as a part of broader descend from May 25 peak at $51.98. Since then the WTI crude was down over 12%. Oil remains under strong pressure on rising concerns of global oversupply and lower demand. Attempts from OPEC that includes leading world oil producers which are not members of the cartel to stabilize oil price and prevent it from further fall so far did not give any results.
OPEC’s agreement for production cut by 800,000 barrels per day that was reached in November, was extended for additional nine months from the end of June.
Rising U.S. oil output, particularly from shale drillers, is contributing to the ineffectiveness of the OPEC-led cuts. Analysts see strong build in the U.S. rig count, weekly builds in U.S. crude inventories, rising production in Nigeria and Libya, and weak compliance by key OPEC members UAE and Iraq and the as t main reasons for falling oil price.
From non-OPEC oil producers Russia is the biggest contributor to ongoing glut. Russia is expected to export 61.2 million tonnes of oil in the third quarter which is around 5 million barrels per day through pipelines, against 60.5 million tonnes in the second quarter. In addition to in Russia's tanker shipments, total exports are likely more than 9 million barrels per day.
On the other side, the United States, which is not participating in any deal to reduce production, oil output has risen more than 10% over the past year to 9.3 million barrels per day, with expectations from Energy Information Administration that number could rise above 10 million barrels per day in 2018.
Crude oil inventories were again main driver of oil prices last week. Report from American Petroleum Institute (API), released on Tuesday showed US crude inventories rose 2.75 million barrels at the end of last week which as well above forecasted 2.73 million barrels draw. Oil prices started to fall in early Wednesday’s trading and accelerated strongly lower on release of weekly report from the Energy Information Administration (EIA) which showed U.S. crude inventories fell less than expected while gasoline stockpiles unexpectedly rose in week ended May 2.
Inventories of US crude rose by 1.7 million barrels in the week ended June 2, well below expectations of 2.7million barrels draw.
Main surprise came from Gasoline inventories which unexpectedly rose by 2 million barrels against expectations for a decline of 457,000 barrels.
The unexpected increase in gasoline inventories surprised, as the summer months are traditionally associated with the start of the summer driving season in the US, which usually spurs heavier refining activity and fall in gasoline inventories.
Another surprise came from release of unexpectedly bullish Natural gas weekly storage data, released on Thursday. The US Energy Information Administration said in its weekly report that natural gas storage in the U.S. rose by 78 billion cubic feet in the week ended June 9, below forecasts for a build of 86 billion. The price of US natural gas futures rose sharply from $2.92 to $3.06 per million BTU on release of natural gas storage data.
However, natural gas erased some of gains from the previous day on Friday and ended week flat at $3.02, where the price opened on Monday.
Brent Crude oil ended the fourth straight week in red and was down around 1.5% for the week.
Spot Gold remains in red for the second week and extends weakness of fresh strength of the US dollar. Safe haven demand remains subdued, despite some disappointing U.S. economic reports that raise concerns about the outlook of U.S. economic growth in the second quarter.
The yellow metal failed to capitalize on Friday’s dip of the dollar, triggered by fall in U.S. homebuilding for a third straight month in May to the lowest level in eight months, which suggests that subdued housing activity could dent economic growth in the second quarter. Also, Housing Starts dropped 5.5% to a seasonally adjusted annual rate of 1.09 million units, well below forecasts of a 4.1% increase, while the University of Michigan consumer sentiment fell to 94.5 in early June from 91.1 in May, against forecast at 97.1.
Gold stayed under pressure as investor sentiment on the precious metal remained negative, after the Federal Reserve on Wednesday signalled that an additional rate hike may be appropriate.
Gold ended Friday’s trading flat and near fresh three-week low at $1251, posted on Thursday and registered loss of 1.1% for the week. Technical outlook also remains negative as studies are entering into stronger bearish mode that signals further weakness. Meanwhile, limited corrective actions towards strong $1270 resistance zone could be anticipated on oversold daily studies.
Another eventful week is behind with three central banks releasing their monetary policies and series of economic indicators release that kept markets busy during the week.
Action started on Monday, when pound fell to the lowest of nearly eight weeks, under pressure on concerns over political turmoil in the UK after last week’s election, but regained ground on Tuesday, when better than expected UK inflation numbers in May (0.3% m/m vs 0.2% forecast) and annualized inflation coming at 2.9% vs 2.7% forecast / previous month, sent British pound sharply higher.
Release of UK jobs data cooled the pound which retreated on weaker than expected UK average earnings data for April that fell to 2.1%, undershooting the forecast at 2.4% and downwards revised March’s numbers at 2.3%. Weak number raised fears of further slowdown in pace of rising of salaries, bringing more negative sentiment to the British pound and overshadowing upbeat UK jobless claims that fell sharply to 7.3K in May vs forecast at 20.3K and April’s release at 22K.
An additional pressure on British pound came from release of UK retail sales which fell 1.2% in May, compared to expectations for a 0.8% fall and after a revised 2.5% increase the previous month.
The pound bounced back against the U.S. dollar on Thursday, erasing earlier losses as members of the Bank of England appeared divided on the direction of interest rates, fuelling expectations for an upcoming hike.
BoE has opted to keep interest rates unchanged at a record low and maintain the level of its asset purchase program, in line with expectations, but members of the Monetary Policy Committee surprised markets with three dissents, as Five MPC members voted in favor of holding rates, while three opted for a hike and Markets had expected a vote of 7 to 1.The pound ended week positively but gains were capped by strong technical resistances at 1.2800 zone, provided by daily Ichimoku cloud top and 55 SMA. Sterling remainst stuck within 1.2700 and 1.2800 range against the dollar, with stronger direction signals expected on breach of either boundary.
The US dollar regained ground against its major counterparts on Thursday, after the Federal Reserve raised interest rates by 25 basis points on Wednesday. In a widely expected action, the US Federal Reserve raised interest rates from 1.00% to 1.25%. However, disappointing U.S. inflation data released the same day raised questions about whether the central bank will be able to hike rates again later this year. The core rate of inflation increased at just 1.7 % on year, in the fourth straight monthly deceleration and showing the slowest overall pace in two years. Although the Fed said a recent softening in inflation was seen as transitory, it made investors question its view that the U.S. economy is continuing to improve.
Sentiment on the greenback was also expected to remain vulnerable amid mounting U.S. political concerns over the case that U.S. President Donald Trump is being investigated by special counsel Robert Mueller for possible obstruction of justice.
The greenback recovered and extended gains on upbeat US data released on Thursday, as the Federal Reserve’s decision to raise interest rates continued to support. The U.S. Department of Labor said initial jobless claims in the week ending June 10 decreased by 8,000 to 237,000 from the previous week’s total of 245,000, while jobless claims were expected to fall by only 3,000 to 242,000 last week.
In a separate report the Empire State manufacturing index showed upbeat results in climb to 19.80 in June, compared to forecast of 4.00 and -1.00 in the previous month.
The Euro ended week flat against US dollar, with last week’s trading being shaped in long-legged Doji candle that signals strong indecision. The EURUSD pair was trading within narrow range at the beginning of the week and was then driven mainly by dollar performance after US data. The single currency probed again towards 1.1300 target but gains were short-lived, as the greenback regained traction after Fed. The Euro fell further on Thursday, after upbeat US data further inflated dollar. Fresh weakness threatened for reversal after some important technical support levels have been taken out. However, the Euro managed to limit losses and recover on Friday’s bounce back to 1.1200 zone that sidelined growing downside risk, keeping Euro’s broader bulls in play.
Japanese yen stayed weaker on Friday and ended week in red against the US dollar after the Bank of Japan held monetary policy steady as expected, including the pace of asset purchases at 80 trillion yen annually. Yen fell sharply against dollar on Thursday and extended losses on Friday. The USDJPY currency pair peaked at 111.40, where rally was capped by technical barrier provided by falling daily Kijun-sen line and yen managed to recover some losses on fresh recovery rally below 111.00 handle. However, the pair ended week positively, with bullish outlook for the US dollar expected to drive the pair higher in coming days.